Global Trade Tutorial

Quick Trade Questions & Answers

2010-04-17T20:21:00.000-07:00

If you do not find the answers to your questions, please contact the Trade Information Center at (800) USA TRADE between 8:30 and 5:30pm, Eastern time.

"I have some questions about export licensing."
See Understanding the Rules of Trade in this Tutorial, or contact the Western Regional Office of the Bureau of Export Administration at (408) 748-7450.

"I have some questions about imports, tariffs, or duties."
Imports are handled by U.S. Customs. The San Francisco number for Customs (415) 705-4488 or you can call Washington DC at (202) 927-1000. Tariff schedules for APEC countries can be found on the home page of the APEC Tariff Database.

"I need to get a patent/trademark/copyright."
Extensive information on this topic is covered in Understanding the Rules of Trade in this Tutorial. Or, you can contact the Patent and Trademark Office for forms or more information. The U.S. Patent Search office offers downloads of full issued patents and patent applications for free at http://www.us-patent-search.com/cgi-bin/links/add.cgi

"Where can I get a copy of ...?"
If the document is published by the U.S. government, visit the U.S. Government Online Bookstore.

"I need to find out about regulations in [foreign country]."
Country-specific information can be found in the Market Research section of TradePort.

"I am planning to set up my own import/export business. What are the regulations and licensing requirements?"
The Federal Government does not require a company to have a license or permit to engage in the import/export business. Contact your appropriate state or local city hall regarding requirements and procedures for obtaining business permits.

"What products require an export license?"
Certain products, becuase of both their civilian and military purposes, may require an export license as such products can readily be applied to a foreign country's military program. U.S. companies exporting these products, such as super computers and high-technology devices, need to obtain an export license. See Understanding the Rules of Trade in this Tutorial or contact the Western Regional Office of the Bureau of Export Administration at (408) 748-7450.

"We are a small manufacturing company and would like to export our product overseas. What kind of assistance can you provide?"
A local export assistance provider in your area of California can provide you with a wide range of services. To find the provider nearest you, please see the TradePort Assistance Centers page.

"I would like to set my business in [foreign country]. What are their requirements?"
Country-specific information can be found in the Market Research section of TradePort.

"How can I obtain a carnet?"
Carnets are handled by the U.S. Council for International Business.

"I am an exporter in need of a financing assistance. Can you help me?"
Many different forms of financing assistance are discussed in-depth in the Obtaining Financing section of this Tutorial.

"Can I purchase a product to be exported overseas and have it exempt from California sales tax?"
The State of California Board of Equalization regulates all sales tax in California.

"I need to find some statistical information regarding cost of living or any reference regarding consumer price index."
Statistical information can be found by visiting the Market Research section of TradePort.

"Which governmental agency regulates the labeling of products, such as Made is U.S.A.?
The Federal Trade Commission (FTC) determines whether a product can be labeled, "Made in the U.S.A.", provided that it is comprised of 51% U.S. parts or components.

"I would like to register my product to get an R.N. Number?"
Contact the Federal Trade Commission.

"Where can I copyright my publication/book?"
Extensive information on protecting your intellectual property rights can be found in the Understanding the Rules of Trade section of this Tutorial, and in the TradePort Library.

"I would like to establish my own freight forwarding company. Can you help?"
Contact the U.S. Department of Transportation's Maritime Administration

Where would I obtain information on classifications of products and documentation/licensing requirements to export merchandise?
This Tutorial provides extensive information on product classification in the Market Research section.

What carrier offers service to a particular country and do they have the special cargo handling equipment I need?
Focusing on the Details in this Tutorial provides information about finding the right carrier.

What is the harbor maintenance fee? How is it used?
The U.S. Customs Service is authorized by the Water Resources Act of 1986 to assess a harbor maintenance fee on the value of commercial cargo loaded on or unloaded from a commercial vessel at ports covered by the Act. Proceeds of the harbor maintenance fee are made available to the U.S. Army Corps of Engineers for the improvement and maintenance of U.S. ports and harbors.

The fee is paid by the importers and exporters of cargoes. The fee is based on .125 percent of the value of the cargo.

What is cabotage?
Cabotage is the trade or transport of cargo in coastal waters between two points within a country. U.S. cabotage laws are referred to as the Jones Act. Cabotage laws are common to all countries with waterborne transportation systems.

Where can I obtain information on the Jones Act?
The actual interpretation and enforcement of the Jones Act is the responsibility of the U.S. Customs Service and U.S. Coast Guard. For general inquiries concerning coastwise laws contact the U.S. Department of Transportation's Maritime Administration.

What is an SGS Inspection? Are preshipment inspections required?
The SGS Government Programs Inc. is an independent service company with offices worldwide. It carries out the majority of preshipment inspections. Preshipment inspection is an international program verifying that the quantity, quality, and price of purchased goods meet the import requirements of specific countries. According to SGS, the purpose of these inspections is to monitor purchases arranged by importers in these countries.

Quality and quantity are verified by the packing list and pro forma invoice. Price is evaluated based on the prevailing market price at the time specified in the conditions of sale. Verification of quality, quantity, and price also involves physical inspection.

The cost of preshipment inspection is paid by the importing country, or by the importer. The seller is only obligated to present the goods for inspection. Disputes over the final determinations of the SGS can be appealed by writing to the Appeals Committee, SGS New York.

For information on the countries that require preshipment inspections, contact SGS

Who can complete a bill of lading?
U.S.-flag carriers can prepare bills of lading. They also have value added services such as cargo status tracking and electronic data interchange (EDI). Freight forwarders also prepare bills of lading. Focusing on the Details in this Tutorial provides information about freight carriers, forwarders and customs brokers.

What is Cargo Preference?
Cargo preference is the reservation, by law, for transportation on U.S.-flag vessels, of all or a portion of oceanborne cargo which is sponsored directly or indirectly by the Federal Government.

Where do I get information on cargo preference laws and issues?
Contact the U.S. Department of Transportation's Maritime Administration

Who can tell me if a commodity that I am shipping is a hazardous material and possibly subject to certain restrictions or regulations?
Contact the Department of Transportation's Research and Special Programs Administration.

Financing Your Exports

2010-04-17T20:15:00.000-07:00

Trade Finance is a specific topic within the financial services industry. It's much different, for example, than commercial lending, mortgage lending or insurance. A product is sold and shipped overseas, therefore, it takes longer to get paid. Extra time and energy is required to make sure that buyers are reliable and creditworthy. In addition, foreign buyers - just like domestic buyers - prefer to delay payment until they receive and resell the goods. Due diligence and careful financial management can mean the difference between profit and loss on each transaction.

This tutorial is intended as an introduction to the different types of trade finance and the different funding sources available. Understanding these alternatives will help borrowers avoid common mistakes like securing the wrong type of financing, miscalculating the amount required or underestimating the cost of borrowing the money.

For additional information and assistance, TradePort offers TradePort Export Finance Online (TEFO), a trade finance program for small business. TEFO provides consulting services and access to pre-export working capital for small and mid-sized enterprise companies (SMEs), their buyers, suppliers and partners worldwide. Find out more about TEFO.

Introduction

All sellers want to get paid as quickly as possible, while buyers usually prefer to delay payment, at least until they have received and resold the goods. This is true in domestic as well as international markets.

Increasing globalization has created intense competition for export markets. Importers and exporters are looking for any competitive advantage that would help them to increase their sales. Flexible payment terms has become a fundamental part of any sales package.

Selling on open account, which may be best from a marketing and sales standpoint, places all of the risk with the seller. In essence, the seller ships and turns over title of the product on a promise to pay from the buyer.

Cash-in-advance terms place all of the risk with the buyer as they send payment on a promise that the product will be shipped on time and it will work as advertised. Cash-in-advance often places the seller at a competitive disadvantage. Today, open account terms with extended dating are becoming more common despite the dangers.

Trade finance provides alternative solutions that balance risk and payment. In this overview, we'll outline the two broad categories of trade finance:

Pre-shipment financing to produce or purchase the material and labor necessary to fulfill the sales order; or

Post-shipment financing in order to generate immediate cash while offering payment terms to buyers.

General Considerations

The following factors and consideratins apply to financing in general.

Financing can make the sale

In some cases, favorable payment terms make a product more competitive. If the competition offers better terms and has a similar product, a sale can be lost.

In other cases, the exporter may need financing to produce the goods or to finance other aspects of a sale, such as promotion and selling costs, engineering modifications, and shipping costs. Various financing sources are available to exporters, depending on the specifics of the transaction and the exporter's overall financing needs.

Financing Costs

The costs of borrowing, including interest rates, insurance and fees will vary. The total cost and its effect on the price of the product and profit from the transaction should be well understood before a pro forma invoice is submitted to the buyer.

Financing Terms

Costs increase with the length of terms. Different methods of financing are available for short, medium, and long terms. Exporters need to be fully aware of financing limitations so that they secure the right solution with the most favorable terms for seller and buyer.

Risk Management

The greater the risks associated with the transaction, the greater the cost. The creditworthiness of the buyer directly affects the probability of payment to an exporter, but it is not the only factor of concern to a potential lender. The political and economic stability of the buyer's country are taken into consideration.

Lenders are generally concerned with two questions:

Can the exporter perform? They want to know that the exporter can produce and ship the product on time, and that the product will be accepted by the buyer.

Can the buyer pay? They want to know that the buyer is reliable with a good credit history. They will evaluate any commercial or political risk.

If a lender is uncertain about the exporter's ability to perform, or if additional credit capacity is needed, government guarantee programs are availalbe that may enable the lender to provide additional financing.

Export Intermediaries

Many times, small business owners may not have the time or resources to pursue international sales. If there is a demand for the company's product, use of export intermediaries may prove beneficial.

Export Trading Companies (ETCs) and Export Management Companies (EMCs) can help with international sales and marketing efforts. IN some instances, EMCs can help finance export sales. Some of these companies may provide short-term financing or may simply purchase the goods to be exported directly from the manufacturer. This eliminates any risks associated with the export transaction as well as the need for financing.

Larger enterprises involved in online commerce can expand the way they do business and trading with dependable online payment processing services.

Types of Trade Finance

Trade Finance, Working Capital Loans and Foreign Buyer Financing

Trade finance generally refers to the financing of individual transactions or a series of revolving transactions. In addition, trade finance loans are often self-liquidating—that is, the lending bank stipulates that all sales proceeds are to be collected, and then applied to payoff the loan. The remainder is credited to the exporter's account.

The self-liquidating feature of trade finance is critical to many small, undercapitalized businesses. Lenders who may otherwise have reached their lending limits for such businesses may nevertheless finance individual export sales, if the lenders are assured that the loan proceeds will be used solely for pre-export production; and any export sale proceeds will first be collected by them before the balance is passed on to the exporter.

Given the extent of control lenders can exercise over such transactions and the existence of guaranteed payment mechanisms unique to or established for international trade, trade finance can be less risky for lenders than general working capital loans.

Working Capital Loans

For exporters, working capital loan programs are normally associated with pre-shipment financing. Many small businesses need pre-export financing to cover the operating costs related to a sales order or contract. Loan proceeds are commonly used to finance three different areas:

Labor: The people needed to build or buy the export product.
Materials: The raw materials needed to produce the export product.
Inventory: The costs associated with buying the export product.

TradePort Export Finance Online (TEFO) offers a Working Capital Loan Program. Detailed information is here.

Term Financing for Foreign Buyers

Frequently, foreign buyers don't have the cash on hand to pay for major purchases. So the buyers ask for extended credit terms and/or financing. Few exporters can manage the cash flow dilemma or commercial and political risks caused by these long-term contracts.

Buyer Credit Programs are often an effective solution that benefits the exporter, their buyer and commercial lenders providing the loans. Programs typically provide loan guarantees to commercial lenders. These kind of programs benefit all the parties involved. The exporter benefits because they’re paid cash on delivery and acceptance of the product or service. The foreign buyer benefits because they get extended credit terms at markets rates or better. And the lender benefits because guarantees, many backed by the U.S. Government, mean full repayment of the loan and a reasonable return on funds loaned.

TradePort Export Finance Online (TEFO) provides Term Financing for foreign buyers. Detailed information is here.

Trade Finance Products

Factoring

Once a product has been shipped, that inventory is converted to an Account Receivable (A/R). A list of all Accounts Receivable are maintained on an aging report while the exporter waits for final payment. If there is a need for immediate cash, it's possible to sell the A/R at a discount. This solution is called Factoring.

Factoring is the discounting of foreign accounts receivable that do not involve drafts as the method of payment. A Factor (an organization that specializes in the financing of accounts receivable) takes title for immediate cash at a discount from the face value. Although factoring is often done without recourse to the exporter, verify these specific arrangements.

Factors typically provide 70% of the face value with 3-5 working days, and assume responsibility for collection from the buyer. After final payment, the Factor will pay the remaining 30% - less a service fee of 4% - 5%.

TradePort Export Finance Online has more information on Export Factoring here.

TEFO has more information on Import Factoring here.

Forfaiting

Forfaiting is the selling, at a discount, of longer term accounts receivable or promissory notes of the foreign buyer. These instruments may also carry the guarantee of the foreign government. Both U.S. and European forfaiting houses, which purchase the instruments at a discount are active in the U.S. market. Because forfaiting may be done either with or without recourse, verify all of the specific the specific arrangements.

More information on Forfaiting is here.

Purchase Order Financing

A Purchase Order (P.O.) is a legal agreement signed by a buyer requesting a seller to provide goods or services. Purchase Orders normally list the amount of goods or services required and the terms and conditions of delivery and payment.

Major domestic buyers will normally issue a P.O. with Net 30 to 60 day terms. Overseas suppliers will usually ask for OD or sight draft Letter of Credit terms. For an importer, this difference in terms of sale means that there won’t be any cash coming in during the manufacturing process or the transit period. Unless a bank or factor will finance the A/R period, the importer is out of cash until the invoices are finally paid off.

Purchase Order Financing can be an alternative solution to this cash flow dilemma. P.O. Financing is a short-term funding technique used to finance the purchase or manufacture of goods that have been presold to a creditworthy customer. Lenders that offer this specialized form of financing will assist in the purchase of product inventory by using the inventory and confirmed purchase orders as collateral.

Importers, Exporters, Distributors or Manufacturers can use Purchase Order Financing. Funds are used for issuing Letters of Credit, payment to suppliers for finished goods, raw materials or direct labor. Purchase Order Funding is a risky form of financing and therefore costs more than traditional financing. It requires extensive due diligence, and lenders are highly selective. If you can meet the prerequisites there are some excellent P.O. lenders available to offer you a financial solution

More information about P.O. Financing is here.

Sources of Export Financing

The TradePort Export Finance Online (TEFO) Program is a managed financial network of banks, lenders and brokers focused on the small business market. The TEFO/TradePort partnership brings together the international trade strengths of TradePort, the CalTrade Coalition, California’s trade promotion community, private sector banks and lenders, the U.S. Commercial Service, the U.S. Export-Import (EXIM) Bank and the Small Business Administration (SBA) for the benefit of small business trade development.

Commercial Banks

Large multinational banks are generally thought to be the most experienced in trade finance. Frequently these services are reserved for their major clients and maintain transaction minimums of $1M or more. These banks are less interested in working with small businesses because of smaller deal size and volumes accompanied by greater risk. In fact, small importers and exporters often present a business profile that creates obstacles to financing. Even SMEs with large trade deals are not attractive to larger banks due to risk and credit issues such as loan concentration, debt-earnings ratio restrictions or insufficient collateral.

It is important to select a lender that is sincerely interested in serving businesses of similar type or size. If your bank lacks an international department, it may refer you to a correspondent or partner bank. There are non-banks lenders and service providers that specialize in trade finance.

Due Diligence

As part of your due diligence when selecting a bank and a financial solution, ask the following questions:

What are the charges for confirming a letter of credit, processing drafts, and collecting payments?
Does the bank have foreign branches or correspondent banks? Where are they located?
Can the bank provide buyer credit reports? At what cost?
Does the bank have experience with U.S. and state government financing programs that support small business export transactions? If not, is it willing to consider participating in these programs?
What other services, such as trade leads, can the bank provide?

Application Information

Banks and non-bank lenders will require business information as part of their due diligence. This information is packaged with with a loan application and submitted to the lender. The typical information required may include some or all of the following:

Year end financial statements for the last three years on the business and signed tax returns.
Current interim financials, normally not older than 90 days.
Current A/R and A/P agings and inventory details
Personal Financial Statements on all owners of 20% or more and each of their last three years tax returns (signed).
Product literature/Business Plan or narrative on how business is operated, number of products produced and sold (proof of ability to perform).
Resumes on key management.
Financial projections (P&L) and Cash Flow statement
Proof of 50% US Content in product exported.
Purchase Order copies from exporter from foreign buyers (basis for loan/line advances).
Information on Foreign Buyers (ability to pay)

Assistance from the Federal Government

Several federal and local government agencies offer programs to assist exporters with their financing needs. Some are guarantee programs that require the participation of an approved lender, while others provide loans or grants to the exporter or a foreign government.

Government programs generally are aimed at improving an exporter's access to credit. They are not intended to subsidize the cost of credit at below-market levels. With few exceptions, banks are allowed to charge market interest rates and fees; a portion of those fees are paid to the government agency to cover the agencies' administrative costs and default risks.

Government guarantee and insurance programs are used by commercial banks to reduce the risk associated with loans to exporters. Lenders who are concerned with an exporter's ability to perform under the terms of sale, and with an exporter's ability to be paid, often use government programs to reduce the risks that would otherwise prevent them from providing financing.

Export Import Bank of the United States (EXIM Bank)

EXIM Bank is an independent federal government agency responsible for assisting export financing of U.S. goods and services. It offers a variety of information services, insurance, loan, and guarantee programs.

Ex-Im Bank operates an export financing hotline that provides information on the availability and use of export credit insurance, guarantees, direct and intermediary loans extended to finance the sale of U.S. goods and service abroad.

Briefing programs are offered by Ex-Im Bank to the small business community. These programs includes regular seminars, group briefings, and individual discussions held both within the Bank and around the country.

Find out more about EXIM Bank.

U.S. Department of Agriculture (USDA)

The Foreign Agricultural Service (FAS) of USDA administers several programs to help make U.S. agricultural exporters competitive in international markets and make U.S. products affordable to countries that have greater need than they have ability to pay.

These programs are designed to make it easier for commodity exporters to obtain bank financing by providing repayment guarantees to the lenders.

The USDA's Commodity Credit Corporation (CCC) operates Export Credit Guarantee Programs to provide United States agricultural exporters or financial institutions a guarantee that they will be repaid for short- and intermediate-term commercial export financing to foreign buyers. These programs protect against commercial or noncommercial risk if the importer's bank fails to make payment. Under one program, the CCC will guarantee credit terms of up to 3 years and under another, credit terms from 3 to 10 years are guaranteed.

Find out more about the CCC.

Small Business Administration (SBA)

The SBA has some services specifically designed to help the small business get started in exporting. The SBA provides financial assistance programs for U.S. exporters. Applicants must qualify as small businesses under the SBA's size standards and meet other eligibility criteria. The SBA has two main programs to assist U.S. exporters—the Export Working Capital Program and the International Trade Loan (ITL) program.

The SBA programs provide the small business owner with financing aids that will enable the business to obtain the capital needed to get into exporting.

This program is designed to help small business exporters obtain financing by reducing risks to lenders. The SBA will guarantee up to 90% of a loan from a private bank. The proceeds from the loan can be used for pre-shipment working capital, post-shipment exposure coverage, or a combination of both.

Find out more about the SBA.

Understanding the Rules of Trade

2010-04-17T20:08:00.000-07:00

U.S. EXPORT CONTROLS and ECONOMIC SANCTIONS – AN OVERVIEW
Cecil Hunt*
Member of the District of Columbia and California Bars

I. Introduction

Until a decade or so ago it was understandable, even if hazardous, for a company to believe that it could readily judge from the nature of its operations whether it had to be concerned with compliance with U.S. export controls and economic sanctions. Export controls were widely viewed as affecting only advanced, sensitive, or weapons-related goods and technology. A common perception was that a company that did not deal internationally in such goods or technology had little, if any, compliance exposure. As regards economic sanctions, companies generally understood that broad embargoes were in place against a few countries, such as Cuba, but if a company had no dealings, direct or indirect, with an embargoed country (and few did) it paid little attention to sanctions.

Today, U.S. export controls and economic sanctions affect a much wider range of international transactions. Moreover, these measures reach many activities that are either completely domestic or unlikely to be viewed as having an international aspect. Let’s note just a few examples of the broadened regulatory reach.

A company the does no international business whatsoever may have to restrict the access its foreign national employees are given to certain technical data.
A growing number of controls require an export license for even very mundane items if destined for proscribed users or uses, thereby calling for “know your customer” procedures.
Economic sanctions are no longer aimed at only a handful of countries, but now also involve multiple lists of names of individuals and entities to be checked, sometimes irrespective of whether the transaction involves international business.

The landscape of U.S. export controls and economic sanctions is a labyrinth. Not only are several different agencies administering and enforcing controls, but also the rules are derived from different basic statutes and are affected by numerous free-standing (and sometimes uncodified) pieces of legislation. Furthermore, the transparency that is the norm in other regulatory contexts is often missing. Limitations on judicial review, plus judicial deference to the executive branch on matters related to foreign policy and national security result in there being scant judicial scrutiny of official actions in this field. Notwithstanding the complexity and occasional opacity of these regulations, firms can and do learn to cope with them and, for most, compliance expense is relatively modest.

Money-laundering laws and controls imposed specifically on financial institutions are not covered here, and this overview does not attempt to cover the full scope of export controls and economic sanctions. It is designed, rather, to be a helpful starting point for further inquiry. It can introduce the reader to some of the terminology and acronyms, which will be highlighted at first use.

II. Who controls what?

There are several agencies that handle export licensing and administer economic sanctions.

A. Most exports that are controlled are subject to the controls administered by the Bureau of Industry and Security (BIS) of the Department of Commerce

1. These controls are in the Export Administration Regulations. 15
C.F.R. §§ 730-774 (EAR).

2. The normal statutory basis for the EAR, the Export Administration Act (50 U.S.C. app. §§ 2401-2420), is not permanent legislation, and Congress has let it expire on several occasions. Several efforts to enact a new basic law have failed. During periods of lapse, the EAR have been maintained by Presidential order under the International Emergency Economic Powers Act (IEEPA). 50 U.S.C. §§ 1701-1706; see Exec. Order No. 13222, Aug. 17, 2001, 66 Fed. Reg. 44205, Aug. 22, 2001, as
most recently extended by the Notice of August 3, 2006 (71 Fed.
Reg.44551, August 7, 2006).

3. The EAR are commonly referred to as applying to "dual-use" items, that is, items which are suitable for either military-related use or nonmilitary use. Some items subject to the EAR, however, have no military use.

4. The EAR include controls imposed for a variety of purposes. Some controls still reflect the Cold War focus on denying Communist countries access to technologically advanced items of strategic significance. Increasingly, the EAR implement efforts to stem the proliferation of weapons of mass destruction and to limit the ability of certain countries or actors to support international terrorism or to pursue destabilizing military efforts or terrorist activity.

B. Exports of "defense articles" and "defense services" are controlled by the Directorate of Defense Trade Controls (DDTC) of the Department of State.

1. These controls are in the International Traffic in Arms Regulations (ITAR), which include the United States Munitions List (USML). 22 C.F.R. parts 120 through 130.

2. The ITAR are promulgated under the authority of the Arms Export Control Act. 22 U.S.C. §§ 2778-2994.

3. The USML consists of items specially designed or modified for military use, but designations and determinations have extended ITAR jurisdiction to some items with non-military use .

C. The Office of Foreign Assets Control (OFAC) of the Treasury Department administers restrictions on business with countries, like Iran and Syria, that are the target of broad trade embargoes and economic sanctions that cover more than just exports.

1. The OFAC regulations applicable to these embargoes are found in successive parts of Title 31 of the Code of Federal Regulations, starting with the Foreign Assets Control Regulations, 31 C.F.R. part 500.

2. Most OFAC regulations are issued under authority delegated by the President when declaring an emergency and invoking the International Emergency Economic Powers Act. 50 U.S.C. § 1701, et seq. Embargoes imposed prior to the 1977 enactment of IEEPA are based on the Trading with the Enemy Act. 50 U.S.C. app. §§ 1-44.

D. Other agencies exercise export licensing jurisdiction over special types of exports. The EAR list such controls. See Supplement No. 3 to 15 C.F.R. part 730.

III. Commerce Department

A. The structure of the Export Administration Regulations
1. The jurisdictional reach of the regulations is broad, but the portion of transactions requiring a license is comparatively small -- probably less than two percent by value of U.S. industrial exports.

2. The term "subject to the EAR" is key, and it has a double aspect.

a. Items (commodities, technology, and software) subject to the
EAR broadly include all items "in the United States" and "U.S.-
origin" items outside of the United States, with three important
exceptions (15 C.F.R. § 734.3):

i. Items exclusively controlled for export by another U.S. agency;

ii. “Publicly available” technology and software.

iii. Foreign-origin items with U.S.-origin content that is below a specified percentage.

b. Activities subject to the EAR

i. Exportation from the United States and reexportation. 15 C.F.R. § 734.2.

ii. Certain releases of technology or software to a foreign national. The release in the United States of software or source code to a foreign national who is not a permanent resident is a “deemed export” to the home country and is subject to any license requirement that would apply to an actual transfer to that country. Deemed reexports are also controlled. 15 C.F.R. § 734.2.

iii. The involvement of U.S. persons in supplying foreign-origin
items or in otherwise supporting a transaction with knowledge of a proliferation link. 15 C.F.R. §§ 744.2- 744.4, and 744.6.

iv. Intangible exportation, including facsimile or internet
transmission to an addressee abroad and placement on the World Wide Web without limitation on foreign access.

3. License requirements

a. The Commerce Control List (CCL) (15 C.F.R. part 774) has
detailed entries describing items subject to list-based licensing
requirements. Items that are "subject to the EAR" but not on the
CCL require a license only in special situations, noted below. These are called "EAR 99" items.

b. Entries on the CCL are identified by an Export Control
Classification Number (ECCN). To illustrate, ECCN 7A001 refers to certain accelerometers designed for inertial navigation or guidance systems. The "7" places it under "navigation and
avionics", one of ten CCL categories. The "A” identifies it as
"equipment, assemblies, or components" ("B" is test, inspection
and production equipment, "C" is materials, "D" is software, and
"E" is technology). The "001" places it in the national security
category as to basis for control, 0-99 being national security, 100-
199 missile technology, 200-299 nuclear, 300-399 CBW, and 900-
999 anti-terrorism, crime control, and other bases for control. If
an item is controlled on more than one basis, the lowest applicable "reason for control" group number is used in the
ECCN.

c. An item may be on the CCL, but generally will require a license
only if the country chart (15 C.F.R. part 738) has an "X" in one
or more of the "reason for control" columns opposite the
destination country. In such a case, the exportation will be
termed “NLR” (no license required) to the specific destination,
even though the item is not EAR99.

d. Finally, even if an item is on the CCL and there is an "X", no
export license need be applied for if a license exception applies.
License exceptions are set forth in Part 740 of the EAR. They cover special risk-reducing circumstances, such as low-value
shipments and temporary exports that remain under the exporter's control. The availability of a particular license exception may depend upon the country of destination.

4. Part 736 of the EAR states ten General Prohibitions

a. The first three General Prohibitions are based on the control
list/country chart matrix. These "prohibitions" are better understood as being affirmatively stated requirements to seek an
export or reexport license.

b. The other seven are either absolute prohibitions or, in effect,
statements of additional license requirements that are not CCLbased.

i. General Prohibition Five states the so-called "catch-all" control. If the exporter "knows" of a specified link to weapons proliferation (or has been informed by BIS that a license is required due to proliferation risk), the exporter must seek a license for any item subject to the EAR, even if it is not on the CCL. "Knowledge" is defined in EAR Part 772 to include more than just positive knowledge.

ii. General Prohibition Six applies to exports to the embargoed countries covered in EAR Part 746. The scope of such embargoes extends well beyond the items listed on the CCL. The country segments of Part 746 provide guidance as to the relationship between the EAR rules and OFAC rules relating to the country. See, for example, 15 C.F.R. § 746.7 relating to Iran.

iii. The restriction of exports to named companies, institutions, and individuals is a growing part of the export control system. BIS subjects persons to enforcementrelated "denial orders" that, under General Prohibition 4, bar their access to items subject to the EAR. There is a “denied persons list” that is not part of the Code of Federal Regulations, but is made available for convenient
reference on the BIS website and elsewhere. General Prohibition 5 bars export or reexport without a license to an end-user prohibited by Part 744. There is an "entity list", Supplement No. 4 to Part 744. This list is primarily based upon a listed entity's link to activity of proliferation concern, and listing generally means that a license must be sought even for an otherwise uncontrolled export. Part 744 also requires a license for items going to a person designated on any of several lists administered by OFAC,
such as “Specially Designated Terrorists”, but defers to OFAC in order to avoid duplicative licensing review.

5. Technology and software

a. The EAR exclude much information from the scope of controls by defining "technology" as specific information "necessary for the
'development', 'production', or 'use' of a product." CCL entries
further limit the scope by controlling only that technology (or
software) that is related to equipment or material on the CCL.
See the definition of "technology" in EAR Part 772 and the
General Technology and Software Notes in Supplement 2 to Part
774 of the EAR.

b. The EAR also significantly limit the reach of controls over
technology and software by excluding that which is termed
"publicly available". 15 C.F.R. §§ 734.2(a)(1), and 734.7-734.11.

i. This approach reflects, in part, the concept that export controls on publicly available material would be ineffective and unnecessary -- the idea being that people are unlikely to disseminate free of charge the really significant technology.

ii. The approach also protects freedom of speech and inquiry
by not controlling fundamental research, academic instruction and conferences, or material being placed in the public media.

c. Even controlled technology and software is eligible for significant license exceptions.

i. License Exception TSU allows license-free export of operation technology or software that is the minimum necessary for the installation, operation, maintenance and repair of lawfully exported products, sales technology customarily supplied when seeking business, software "bug fixes", and mass-market software. 15 C.F.R. § 740.13.

ii. License Exception TSR permits technology or software to go to many countries if the customer agrees in writing not to make a prohibited retransfer. 15 C.F.R. § 740.3(d).

d. Important and helpful guidance is to be found in Supplement No. 1 to EAR Part 734, "Questions and Answers -- Technology and
Software subject to the EAR."

e. Note that some of the provisions that generally limit controls do not apply to encryption items. See, e.g., 15 C.F.R. §§ 734.2(b)(9), 734.3(b)(3), 734.4(b)(2), 734.8(a), and 734.9.

B. Enforcement of the Export Administration Regulations

1. Violations of the EAR are subject to severe criminal and administrative penalties. Criminal cases are investigated by special agents from BIS and/or Immigration and Customs Enforcement, a Department of Homeland Security element, and are prosecuted by U.S. Attorneys' offices. BIS, though charges filed with an Administrative Law Judge by BIS counsel, may impose civil fines or administrative sanctions. A 2006 amendment greatly increased the maximum civil and criminal penalties under IEEPA. Criminal violations of IEEPA are Class C felonies, and 18
U.S.C. § 3571 allows higher fines than those specified in IEEPA.

2. Administrative sanctions include subjecting the offender and related persons to a "denial order". Such an order not only bars exports by such persons, but also bars others from supplying such persons with items that have been exported from the United States. A denial order can be imposed temporarily on an ex parte basis by the Assistant Secretary for Export Enforcement without a finding of a violation, if found necessary to prevent an imminent violation. Export privileges may also be denied on the basis of a conviction under the EAA or under other export control or national security-related laws. 15 C.F.R. §§ 764-766.

3. Goods subject to export control, whether by BIS or another agency, are subject to the detention, seizure and forfeiture authority of another Department of Homeland Security component, the Bureau of Customs and Border Protection. 19 C.F.R. part 171.

C. Getting help

1. The BIS website is http://www.bis.doc.gov. This website contains information on training courses, where to get regulations and forms, new developments, links to web sites of other agencies, and much more. Help can also be obtained by a call to the BIS Export Counseling Division, (202) 482-4811, fax (202) 482-2927 or to the BIS Western Regional Office, (949) 660-0144, fax (949) 660-9347.

2. Guidance on a particular matter can be obtained in two ways:

a. A classification request will get advice (a “CCATS”) from BIS as
to whether a described item is on the control list and, if so, the
Export Control Classification Number. 15 C.F.R. § 748.3(b).

b. BIS will respond to a request for an advisory opinion by giving
non-binding advice as to the likelihood of receiving a license for a
particular item to a particular recipient. 15 C.F.R. § 748.3(c).

3. Telephone and fax contact numbers for many agencies are included in Supplement No. 3 to EAR Part 730.

a. The EAR are massive. Help is needed! People who work often
with this material are likely to subscribe to the loose-leaf, thousand page, ring-binder version available from the Government Printing Office for $182.00 a year. This service
updates the EAR with supplements several times a year and
contains features not included in the Code of Federal Regulations,
such as a twenty-page index and a listing of denied persons. Upto- date, searchable, EAR databases can be obtained by
subscription from government sources. Details and links are on
the BIS website.

b. Commercial vendors also offer a variety of software and support services to assist companies in automated screening of the several name lists and in compliance management generally.

IV. State Department

A. Scope of the International Traffic in Arms Regulations

1. The Arms Export Control Act (AECA) provides authority to designate "defense articles'' and "defense services" and subject them to control. The United States Munitions List (USML), which is part of the International Traffic in Arms Regulations (ITAR), sets forth what has been designated. 22 C.F.R. part 121. The USML is divided into 21 "Categories". These range from those unambiguously confined to military use, like Category II -- "Artillery Projectors", to some that can encompass items with civil application, like Category XII that covers some image intensification and night-vision items and Category XV – “Spacecraft Systems and Associated Equipment.”

2. For the most part, the USML does not have the detailed technical parameters that make the dual-use CCL so lengthy, but more precise. The USML runs fewer than 30 pages in the code, the CCL about 170.

3. The AECA does not contain criteria for the designation of defense articles and services, but there is a policy stated in the ITAR.

a. To be so designated, the item shall be "specifically designed,
developed, configured, adapted, or modified for a military application" and

b. The item shall have neither "predominant civil applications" nor
"performance equivalent (defined by form, fit and function) to that
of an article or service used for civil applications", unless

c. The item has "significant military or intelligence applications such that control [under the ITAR] is necessary." 22 C.F.R. § 120.3. The record and rationale of the application of point c. to decide that a dual-use article or service is or should be on the USML is not easy to discover.

4. The ITAR state that the intended use, military or civilian, is not relevant to the applicability of the ITAR, but there are significant exceptions that exclude from ITAR requirements, for example, some image intensification tubes used in commercial devices.

5. The ITAR contain a "commodity jurisdiction" (CJ) process. 22 C.F.R. § 120.4. Business can file CJ requests with DDTC either to resolve doubt as to whether an article or service is covered by the USML or to seek removal from the list. Alternatively, the CJ process may be initiated by filing a classification request with BIS under 15 C.F.R § 748.3.

6. Immediately following the USML in the ITAR are a number of so-called "interpretations", many of which amplify the list terms. These interpretations have the same force as USML entries. 22 C.F.R. § 121.2.

B. Defense Articles and Defense Services

1. Note that ITAR terminology is different from the "commodity,
technology, software" structure of the EAR.

a. The ITAR define defense article to include technical data (22
C.F.R. § 120.6), but the definition of defense service includes also
the furnishing of technical data to foreign persons, in the United
States or abroad. 22 C.F.R. § 120.9. The broad ITAR definition of
defense service merits special attention, as the ITAR has no
exception for such routine operating directions as the EAR
provide in License Exception TSU.

b. Unlike the EAR that treat technology and software separately, the ITAR treat software as technical data. The definition of technical data includes software "directly related to" defense articles (22 C.F.R. § 120.10 (a)(4)), but the term "specially designed software" is used in the Missile Technology Control Regime section. 22 C.F.R. § 121.16. As for components and parts, the USML standard is to list those that are specifically designed or modified for specified defense articles. DDTC applies a “see through” policy and may assert jurisdiction over a piece of non-military equipment if it incorporates a defense article component.

C. More than "exports"

1. The ITAR require the registration of persons who engage in
manufacturing, brokering, importing or exporting defense articles or furnishing defense services.

2. DDTC also licenses temporary imports of defense articles. 22 C.F.R. §§ 120.18, 123.1-123.4. Permanent imports are under the jurisdiction of Treasury's Bureau of Alcohol, Tobacco and Firearms. 27 C.F.R. parts 47, 178 and 179.

3. The ITAR extend to brokering of transactions involving defense articles or defense services, whatever the location or origin, by a person in the United States, by a U.S. person, wherever located, or by a person “subject to the jurisdiction of the United States.” DDTC has recently taken the controversial position that a foreign person outside the United States can become subject to this provision by entering into an agency agreement with a U.S. company. These provisions reach brokering activity relating to the manufacture of defense articles. Subject to stated exemptions, brokers must register with DDTC and pay fees. Additionally, some brokering, activity may require prior approval from or notification to DDTC. 22 C.F.R. part 129.

4. Like the EAR, the ITAR define "export" to include oral or visual
disclosure of technical data to foreign persons in the United States or abroad. The definition also includes "performing a defense service" for the benefit of a foreign person.

D. Registration and licensing process

1. The Registration Statement (DSP-9) must be signed by an
authorized senior officer and must contain disclosures as to corporate officials and foreign ownership and control. Registrants must update information and must give DDTC advance notice of any intended transfer to foreign ownership or control of the registrant or of any entity thereof.

2. U.S. companies involved in international dealings with defense articles or defense services are likely to find themselves parties to numerous "MLAs" manufacturing license agreements (MLAs) and technical assistance agreements (TAAs). These agreements, concluded with the foreign party after draft approval by DDTC, serve as blanket approval for the many ITAR-controlled exports that may occur in the course of contract performance. The agreements must contain ITAR-prescribed clauses and specifically describe the assistance and technical data. Such description can be a daunting task if a complex, long-term arrangement is
involved. The transmittal of a proposed MLA or TAA to DDTC must
also contain extensive ITAR-prescribed content.

3. A Nontransfer and Use Certificate (Form DSP-83) must be
executed by the foreign consignee, foreign end-user, and applicant and submitted to DDTC in connection with any license or MLA or TAA relating to "significant" military or classified articles or technical data, identified as such on the USML.

4. About one-third of all license applications are referred by ODTC to the Department of Defense for review, which may entail further referral to one or more of the armed services. The median processing time for these “staffed” cases not handled solely by DDTC is about 50 days. High value transactions involving major defense equipment are also subject to Congressional notification with a 15 or 30-day waiting period.

E. Licensing Policy and Exemptions

1. Part 126 of the ITAR states a policy of denial of licenses relating to specified countries. This list includes more than just the countries that have been designated for terrorism support or that are the objects of United Nations Security Council sanctions.

2. There is an important Canadian exemption in the ITAR. 22 C.F.R. § 126.5. It is not a blanket exemption from ITAR requirements, so the terms of the ITAR and other guidance as to its scope must be consulted.

F. Enforcement

1. The AECA provides for criminal and civil penalties for violations of the ITAR. The penalties are set by reference to the penalties in the Export Administration Act of 1979, as amended, except that the maximum civil penalty is $500,000 per violation, rather than $100,000. The AECA also incorporates by reference certain EAA provisions relating to investigation of possible offenses, the administrative imposition of civil penalties, and forfeiture. 22 U.S.C. § 2778 (e). In practice, DDTC relies upon Immigration and Customs Enforcement and the Defense Investigative Service to conduct investigations. The ITAR contain procedures for administrative enforcement proceedings that are patterned after those in the EAR.

2. Debarment. The AECA bars, with provision for review and exceptions, the issuance of a license to export an item on the USML to a person convicted of violating specified export control and security related statutes or debarred by another export control agency. In addition to such statutory debarment, the ITAR provide for administrative debarment based upon an administratively determined ITAR violation that DDTC believes shows lack of future compliance reliability. A threeyear debarment is the norm. Moreover, the ITAR provide for interim suspension when DDTC believes that grounds for debarment exist. Beyond proceedings for a person's general debarment, the ITAR also
provide broad and varied bases for discretionary denial or revocation of a specific license, which include being the subject of an indictment under specific statutes.

G. Information

Website: http://www.pmddtc.state.gov
DDTC Response Team:
Telephone: (202) 663-1282
E-mail: DDTCResponseTeam@state.gov

V. Treasury Department

A. Organization and Authority

1. Office of Foreign Assets Control (OFAC)

a. This office reports to the Under Secretary of Treasury
(Terrorism and Financial Intelligence). It administers economic
sanctions programs, which can be grouped in two broad categories.

i. Financial sanctions, including investment bans and asset
freezes.

ii. Export and import embargoes, some extending to other
commercial activity, such as transportation.

b. There is no single, basic regulation issued by OFAC comparable
to the EAR or ITAR. Instead, Title 31 of the Code of Federal
Regulations contains separate parts, starting with Part 500, that
contains the rules applicable to the sanctions against specific
target countries or entities. 31 C.F.R. part 501 contains record
keeping provisions and enforcement guidelines of general
applicability.

2. Statutory authority is varied

a. The International Emergency Economic powers Act (IEEPA), 50
U.S.C. §§ 1701-1706, is the basis for many of the measures
initiated since its enactment in 1977, such as those against Iraq in 1990. IEEPA supplanted the Trading with the Enemy Act
(TWEA), 50 U.S.C. app. §§ 1-44, but then-existing sanctions (e.g.,
against North Korea and Cuba) were grandfathered, with the
regulations continuing in force under the TWEA.

b. Other statutes that provide authority for one or more of the
OFAC sanctions programs include the United Nations Participation Act, 22 U.S.C. § 287c, to implement measures ordered by the United Nations Security Council, and the Antiterrorism and Effective Death Penalty Act, which includes criminal penalties for engaging in financial transactions with the government of a designated terrorist supporting country or providing material support for a foreign terrorist organization. 18 U.S.C. §§ 2332d, 2339B.

c. Some legislation has an impact on sanctions initiated under other authority. For example -

i. Sanctions against Cuba were variously tightened and limited by provisions of the Cuban Democracy Act of 1992 (Pub.L. 102-484, §§ 1701-1712, 22 U.S.C. §§ 6001- 6011) and the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996, also known as the “Helms- Burton” Act (Pub.L.104-114, §§ 201-207, 22 U.S.C. §§
6061-6067).

ii. The Trade Sanctions Reform and Export Enhancement Act of 2000, Title IX of Public Law 106-387, imposed limits on authority to restrict exports of agricultural products, medicines, and medical devices. This legislation, which was implemented in regulatory issuances by Commerce and Treasury, has left sales of these items to Cuba and to other designated terrorist supporting countries subject to special authorization procedures and limitations. Note: These selected references are far from being a comprehensive survey of the legal foundation for the programs administered OFAC. Like the rest of this overview, the object is to convey a general sense of what the agencies do.

B. Asset blocking

1. For many businesses, screening to ensure compliance with OFAC foreign asset blocking regulations will need to be integrated with internal control programs for export control compliance. Blocking requirements apply to persons in the United States and to persons elsewhere who are subject to the jurisdiction of the United States. Depending upon which part of
the regulations applies, the latter can include not only branches abroad but also U.S. controlled foreign entities.

2. Most asset blocking measures are sanctions against a target, but some can be protective, such as the freezing of Kuwait’s assets at the time of the 1990 Iraqi invasion. The targets vary from program to program, and may be a country, including its nationals wherever located, a government, including its fronts ("Specially Designated Nationals"), or a nongovernmental
entity sanctioned for particular activity, such as "Specially
Designated Terrorists" and "Specially Designated Narcotics Traffickers".

3. Title to blocked property remains with the owner. The property must be placed in an interest bearing account. Transactions or transfers involving blocked property are barred, absent OFAC approval. The property can take any form, including financial instruments, goods, contracts, or debts. The property interest of the designated target may be present, future, or contingent.

4. Persons that acquire custody, control or possession of subject property must block it and report the blocking.

C. Exports and transaction controls

1. Different parts of the OFAC regulations affect exportation in different ways, so the terms of the specific control must be examined. For example:

a. The prohibitions subpart of the regulations applicable to Cuba
does not contain a general prohibition of exports from the United
States to Cuba, but it does prohibit "transactions which involve
property in which a designated foreign country, or any national,
thereof, has any interest". In the definitions subpart, this phrase is stated to include any export from the United States to the
designated country. 31 C.F.R. § § 515.201(b) and 515.309. Other
controls do refer in the prohibitions to export to the target.

b. The Iranian Transaction Regulations introduced an expanded
prohibition that includes exportation or re-exportation not only
from the United States or by a U.S. person to Iran, but also to a
third country for use in goods to be exclusively or predominantly
for Iran. 31 C.F.R. § 566.204.

c. The prohibition of “facilitation” by a U.S. person of a transaction
with an embargoed country by a foreign person (such as a
subsidiary) can pose challenging compliance issues. OFAC
regulations that do not bar a foreign subsidiary from business with the embargoed country can, nonetheless, reach facilitation of that business by the U.S. parent. Just what parent-subsidiary activity will be deemed to be facilitation can be hard to determine. See, e.g., 31 C.F.R. §§ 560.206(b) and 560.417.

2. Exports, imports, and other transactions that are otherwise prohibited may be authorized by a general license contained in the regulations, or by a specific license issued by OFAC. Application to OFAC for a specific
license is made by letter, as OFAC does not have standard forms for this purpose.

3. Many of the sanctions administered by OFAC are imposed by Presidential executive order. Except as otherwise stated in the order, the export prohibitions and other sanctions become immediately effective, and general licenses are generally not available until OFAC issues implementing regulations. There has been delay in getting the regulations issued on some occasions, necessitating efforts to obtain specific licenses. This contrasts with the controls administered by the Commerce and State Departments, which do not come into force until the effective date
specified in an implementing regulation.

4. There is overlap between the Treasury and Commerce regulations restricting exports. The regulations do contain provisions designed to avoid having to apply to more than one agency for authorization. For some controls, Commerce defers to authorization by OFAC -- e.g., Iran.
15 C.F.R. § 746.7. Conversely, the OFAC regulations for Cuba and
North Korea contain a general license for all transactions "ordinarily incident" to an exportation "licensed or otherwise authorized by" Commerce. 31 C.F.R. §§ 500.533 and 515.533. Note that this general license does not extend to activity that precedes the authorized exportation, so it can be necessary, for example, to seek separate authorization from OFAC for travel to Cuba to arrange for a sale of food or medicine that would be eligible for an export license from BIS.

D. Enforcement and penalties

1. OFAC's enforcement division has been enlarged, but it does not have its own criminal investigators. It refers potentially criminal cases to Immigration and Customs Enforcement or the Federal Bureau of Investigation. (BIS may investigate and take enforcement action if there is a possible violation of both BIS and OFAC regulations.) Civil penalties administratively imposed by OFAC under procedures set forth in Subpart G of the various OFAC regulations. There is pre-penalty notice and the opportunity to file a written response, but, except for Cuba cases, no hearing and no use of an administrative law judge. If a penalty is not paid, OFAC refers the matter to the Department of Justice for recovery action. In 2003, OFAC published enforcement guidelines as a new Subpart D to 31 C.F.R. part 501.

2. As noted above, different OFAC regulations are based on different statutes. The applicable penalties will depend on which statutory provision is involved. Civil penalties are provided for by IEEPA, TWEA, the Iraq Sanctions Act of 1990, and the Foreign Narcotics Kingpin Designation Act. Title VII of Pub. L. 106-120. Each of these statutes also provides for criminal penalties. IEEPA was amended in 2006 to increase fine and imprisonment limits. Sections 303 and 321 of the Antiterrorism and Effective Death Penalty Act (18 U.S.C. §§ 2332d and 2339B), contain penalties with respect to a person engaging in a transaction with the
government of a designated country or providing material support to a designated foreign terrorist organization.

3. As is the case with exports subject to Commerce or State controls, Customs and Border Protection has authority to detain and seize goods believed to be being illegally exported in violation of OFAC controls. If a violation is found, administrative relief from seizure and forfeiture is obtained through a process under regulations that involves payment of a civil penalty.

C. Information

Website: http//www.treas.gov/offices/enforcement/ofac
Telephone: (202) 622-2490 (compliance), (202) 622-2480 (licensing)
Fax-on-demand: Call (202) 622-0077 for documents and brochures by facsimile

This material was prepared for the American Bar Association- American Law Institute Program Fundamentals of International Business Transactions, December 2006.

Focusing on the Details

2010-04-17T20:04:00.000-07:00

This section deals with pricing for international sales, choosing the terms of sale, preparing the Pro Forma invoice, choosing terms of sale (normally known as "shipping terms") and setting payment terms.

Preparing Price Quotations

An export transaction starts with a price quotation on your product. Potential international customers will request such a quote from you and will consider it legally-binding. Knowing the details behind preparing a quotation'scontent and form, then, can save you time, money, and future headaches.
Each menu item below contains vital information about how to set prices on your exports. Much of what you learn in one section integrates with the others. Altogether, you should gain a fuller picture of international pricing strategies and gain some helpful tips and tricks along the way.

What is the demand for your product?

The answers to this question tell you how much the market will bear for your product or service. It gives you an idea of how much your buyer is willing, or able, to pay. You will also find out if other products like yours are already being sold in your chosen foreign market and how to better compete in the marketplace.
Once you decide your target location, you will want to find out what affects its market demand as that relates to your product.

Some Things to Find Out

The Market's Ability to Pay. What is the economic status of the country? Are you selling to an industrialized nation or emerging market? What is the country's per capita income? Per capita income is a good way to gauge a market's ability to pay. For most industrialized nations, per capita income is comparable to the U.S. If you are selling to a market with a lower per capital market, you may need to modify your product to reach a competitive selling price.
Consumer Needs and Desires. Does your product provide consumers with something new in the marketplace? Is your product something they want? In some cases, a product may be in high demand because it is unique, popular, trendy, or a name brand. With these types of products, a low per capita income may not matter in setting prices.
Competition. How much do your competitors charge for a similar product? How many competitors do you have? What other foreign countries are you competing against? Is a similar product already produced in the country you are entering? If your product has many competitors, you may have to match, or lower, the going price to establish a market share.

How to Investigate Market Demand

Contact overseas distributors and agents who deal with products similar to yours.
If you can, visit the area and gather market information first-hand.
Use the U.S. Commerce Department's (DOC) "Customized Sales Survey" as a price source. It includes information the DOC gathered from local importers, distributors, retailers, wholesalers, end-users and producers who serve in areas where you may be looking to market. You can also pay the DOC for a customized report which supplies prices on comparable products sold in the country of your choice
Register your Quality Assurance program with the standards of the ISO 9000 (International Organization of Standardization). Membered by 90 countries, this organization sets guidelines on how to manage the quality assurance programs of internationally sold goods. You can use it as a competitive marketing tool that helps your company with your buyer's ISO 9000 requirements. Find out more about ISO 9000 at ISOEasy.

Pricing For International Sales

Pricing your product for competition in a foreign market can be a complex process requiring knowledge and skill. You will want the price of your product high enough to make your company a reasonable profit, yet low enough to accommodate each overseas market you seek. Pricing may become your greatest challenge, as international prices and consumer needs fluctuate, market-by-market.
Before setting a price on your product, you will want to find the answers to these questions:

What is the demand for your product? Smart exporters understand their market before entering it. Gather as much information you can concerning its local customs and prices so you can better compete in the marketplace.
What are your company's foreign market objectives? The price of your product is essentially tied to what your company hopes to accomplish by its international sales business. Once you know your aims, you can gauge prices to meet the needs of your company while accommodating the demands of your market.
What are your product's costs? Costs of exporting goods may include charges that stagger the uninformed. It pays, then, to have a clear idea of those costs and of what it takes to be a shrewd cost bargain-hunter. What you need is an insightful glimpse at measuring costs.

No magic formula exists for setting prices on international sales. But, being educated about the converging factors included in international pricing strategies can increase your company's profit.

Your Company's Foreign Market Objectives

What you hope to accomplish by exporting your product plays a big part in deciding the price for your product. Those same goals can help determine which method, or combination of methods you will use to calculate prices for exported goods. The two principal methods of calculating product price are Cost-Plus and Marginal-Cost pricing.

Pricing Methods: Cost-Plus vs. Marginal-Cost

Cost-Plus

This method looks easy, but be careful. The Cost-Plus accounting rationale revolves around maintaining the domestic profit margin. It uses the domestic price as a base price, adds export costs, and deducts any domestic marketing costs from the total. You may run into trouble with it, as variable costs connected with marketing in a foreign land are not taken into account. As such, your price may end up too high to compete in your foreign market. Cost-plus calculations look like this:

Domestic Price

+ Export costs

- Domestic Marketing costs

= Price on Product

Marginal-Cost

The Marginal-Cost method sets a "floor price" based on fixed costs, variable costs of foreign marketing, and profit. Floor price marks the point at which your company starts taking a loss on the sale of its product. Some deem the marginal-cost method a more realistic approach to setting product prices. Floor price is calculated thus:

Fixed costs =

Production costs

Overhead

Administration

Research & Development

Product modification costs =

Special labelling, translated instructions required under regulations.
Foreign market research
Advertising and marketing, promotion to establish product recognition in the new market
Translation, consulting and legal fees for translating documentation
Company in-service training for foreign distributors/agents
After sales service warranty costs
Direct costs (freight, insurance, handling)
Tariffs

Unexpected variable expenses:

time cyle of export sales
change in supplies or components
complications in filling orders
risk coverage in case of payment default
extra sales and administrative costs

Profit Margin (usually 12-15%, depending on financing and credit terms)

Floor Price

Pricing Options

You may want to set a price range for your product, predicated upon the specific customer level you want to capture. Positioning your product or service at the upper end of the market can call for a higher price. Using a moderate price will lower your risk factors. Pricing at the lowest range is possible when you want to reduce inventory and do not have a long-term commitment to your market area.
Always price your product in U.S. dollars terms to avoid currency exchange risks. This should be clarified in all financing agreements as well as on your pro forma quotation. (You will learn more about Preparing a Proforma Invoice later in this section.) At the same time, be aware that currency fluctuations in a foreign land can affect your price at anytime.
The examples below will shed some light on how your business objectives can influence your foreign marketing plan.

Breaking Into A New Market. If you are trying to break into a new market where the competition is fierce, you should adopt a pricing plan that adjusts your price to beat the competition. In some instances this may mean lowering your price to gain a long-term market share. You may need to sacrifice profit in the short term to reach long-term goals.
Increasing Your Market Share. You may need to set your prices slightly lower than the competition to do this. Cutting your marketing costs may be the way to go. Another way to allow you to drop price is to cut your freight costs.

What Are Your Product's Costs?

Earlier you learned how your company objectives factor in designing your marketing and pricing schemes for international sales. It was also mentioned that before you can begin your campaign, you must be able to quote a competitive price on your product. Costs, fixed and variable, need to be calculated within that price. As previously stated, the two principal methods of calculating product price are Cost-Plus and Marginal-Cost pricing.

Be a Good Cost Shopper: How to Shrink Costs

You say you have those cost+ blues? As you can see, keeping a careful watch on cost accounting can mean the difference between black and red in this business. It pays, then, to know how to shrink costs. Just knowing what they are could be the first step toward lowering them.
Incidental charges of Freight, Insurance, and Handling include:

Warfage/dock fees
Handling documentation
Breakage, moisture damage, and other loss.(Hiring a good export packer can save you money. Get a referral from a reputable forwarder.)
Legalization fees
Inspection fees
Courier charges
Harbor maintenance
Agent commissions
Bank charges
Collection costs on letters of credit, like credit insurance costs, if needed.

Note: Clarifying the terms of credit up front will save you pressures later. Be sure to check your customer's credit references. You also may consider adding contingency insurance in case your buyer's coverage is inadequate or non-existent.
Be sure to consider costs which may occur after the merchandise is unloaded on the destination dock. Establish ahead of time, by agreement between you and your buyer, who will pay these landed costs:

Consular
Certification
Documentation fees.

Cost-Saving Strategies on Freight

Another way of cost-savings is to know where to find those savings. Freight-shopping is one place to look.

Freight carrying costs calculate on actual weight or volume weight of your product, whichever brings the highest price to the shipper. Depending on what mode of transport you use, other factors may come to bear. Remember to factor in the weight of the pallet used to transport your units.
Investigate drawing up a multimodal transport agreement. This document allows for the continuum in process loading and unloading within the different modes of travel (truck, ship, air). It affects transport from the point of origin to off-loading in a foreign port. This type of agreement can append a Landbridge or Micro Landbridge agreement to bring your products into inland destinations.
Check with other exporters in your field to find out their means of transport. The use of a shipping association could mean a savings if you are willing to negotiate rate on volume.
Have you accounted for domestic freight costs? Domestic rates can skyrocket due to routing problems if complicated by transporting oversize loads. The maximum truck load limit is 44,000 lbs.
The most common mode of transporation for overseas goods is by waterborne vessel. Sometimes you will need to factor in terminal and bill of lading fees, but you can also save money by find the lowest rates provided by carriers. For instance, some carriers will offer flat-rates per container transport.
Using correct containers can make a difference in shipping charges. Check with the carrier for exact dimensions and weight allowances to find how many items to load in a container.
If you need to transport a less than container load (LCL), a reputable Non-vessel Operating Common Carrier (NVOCC) can provide you with forwarder services as well as offering competitive space rates on smaller loads.
Air shipment may seem like a good way to get your product to its destination. Keep in mind air freight costs will vary according to (a) tariff classification, (b) competition in routing, (c) space availability, and (d) the forwarder's willingness to share commissions. You may find air freight your best choice, weighing time gain against costs. Make sure you check container rates for air carriers. Also, have you considered the maximum allowable weight?

Gaining Incremental Sales

If you want to spread overhead costs out over a long period of time or minimize seasonal fluctuations, your goal may be to increase sales in a steady, constant manner.

Selling Excess or Obsolete Inventory.

You may need to unload accumulating inventory. Many companies view foreign markets as secondary markets for just this purpose. Your price should go low for a quick sell.

Building a Network of Distributors.

By having distributors and agents in your target market, you are more apt to achieve long-term growth and market penetration. To allow distributors to compete effectively, you may need to lower your international price. However, keep in mind, having local distributors and agents could necessitate the need for company training programs, an added cost to the company.

Terms of Sale

Why are Terms of Sale Necessary?

Sometimes called "shipping terms," "incoterms," or "international trade terms," the terms of sale establish the contractual obligations of the seller and the buyer under the price quotation and sales agreement. They distinquish in abbreviated form who is responsible for certain costs at the time of "transfer of risk," who holds ownership when and where the goods will be delivered.
Take note that as seller, you may be still held responsible for any goods that get damaged in transport depending on the mutual financial arrangements for payment.
Terms of Sale for domestic transactions differ from those for international transactions. When you are quoting internationally, international and domestic terms of sale can have different meanings. As a matter of good customer relations and in your own self-interest, you should ensure you and your buyer fully understand the extent of the terms used before shipment your goods.
Definitions of Terms The terms you use will be contingent upon many of the factors you have previously reviewed. When choosing terms you will want to consider the relationship you have with the buyer and the economic and political climate of the exporting country. The table below defines the most widely used terms.

Term	Definition	Risk	Cost	Include on the Quotation
EXW Ex Works	Buyer arranges for pick up of goods at the seller's location. Seller is responsible for packing, labeling, and preparing the goods for shipment on a specified date or time frame.	Buyer assumes all risk.	Buyer pays all transportation costs.	N/A
FCA Free Carrier	Seller is responsible for costs until the buyer's named freight carrier takes charge.	Seller and Buyer	Split	N/A
FAS Free Alongside Ship (over water only)	Buyer arranges for the ocean transport. Seller is responsible for packing, labeling, preparing the goods for shipment, and delivering the goods to the dock.	Seller: until the goods reach the dock. Buyer: from dock to destination	Buyer: all ocean transport costs. Seller is responsible for costs associated with transporting the goods to the dock.	Cost of transporting goods to the dock.
FOB Free On Board (over water only)	Seller arranges for ocean transport of the goods, preparing the goods for shipment, and loading the goods onto the vessel. The goods ship ocean freight collect.	Buyer: once the items are on board.	Seller: wharfage (charges to load the goods onto the ship) and freight forwarder fees.	Costs, until on board.
CFR Cost and Freight (over water only)	Seller has the same responsibilites as when shipping FOB, but shipping costs are prepaid by the seller, instead of shipping collect.	Seller: assumes the risk until the shipment reaches the overseas dock.	Seller: costs of freight fees up to destination.	Add Freight to cost of product.
CIF Cost, Insurance, and Freight (over water only)	Seller has the same responsibilites as when shipping CFR with the addition of including a marine insurance policy.	Seller: until the shipment reaches the overseas dock.	Seller: insurance and freight forwarder fees.	insurance, freight, and costs of goods.

NOTE: This listing is meant only as a brief introduction to terms. It by no means spells out all the obligations under each term. For details on all terms of sale, definitions, and concurrent ICC recommendations, you can purchase Incoterms 1990.
Other terms you'll want to know:

Multimodal Transport	Air Transport	Ocean Transport	Rail Transport
EXW FCA CPJ CIP DAF DDU DDP	FCA	FAS FOB CFR CIF DES DEQ	FCA

Preparing a Proforma Invoice

Sellers are often requested to submit a pro forma invoice with or instead of a quotation. Pro forma invoices are not for payment purposes but are essentially quotations in an invoice form, hence the origin of the latin word "pro forma" which means "in the form of" in Latin.
These invoices serve as models the buyer can use when applying for a license or arranging funds. You will need to detail your invoice carefully, since your buyer may construe the information within in it as a legally-binding offer you make. In fact, as a matter of good business practice, you should ensure your buyer can calculate all costs from the proforma. One other consideration to take into account are variances in requirement demanded by the destination country. You should include a pro forma invoice with any international quotation, regardless of whether it has been requested.
NOTE: Invoices should be conspicuously marked "pro forma invoice."

Sample Pro Forma Invoice

PRO FORMA INVOICE

FROM:
Innovation Technologies

983 Stanley Ave.

San Diego, CA 93820

(619) 567-1938

DATE:	May 8, 1995
Reference No.:	3245
Payment Terms:	Letter of Credit
Country of Origin:	USA
Estimated Date Of Shipment:	45 days
QuoteValid Through:	October 8, 1995

SOLD TO:
Grupo Estevez, S.A. de C.V.

Tamales No. 1 Piso 2

18378 Cd. Polanco Mexico

SHIP TO:
Juarez Industriale

454 Blvd. Cortez

1114 Mexico D.F. Mexico

Quantity

Description

Unit Price

Total Price

100 each

Computer Motherboards

Five (5) sealed cartons

Gross Weight: 10 lbs.

US $ 50.00

US $ 5,000.00

EX Factory

Freight Forwarder Fees

Air Freight

Insurance
CIF Mexico

5,000.00

100.00

1,200.00

20.00
US $ 6,320.00

Price, availability and delivery subject to confirmation at time of order.
Authorized Signature _____________________________

Date______________________

Definitions

PRO FORMA INVOICE

Sellers are often requested to submit a pro forma invoice with or instead of a quotation. Pro forma invoices are not for payment purposes but are essentially quotations in an invoice form. Much of the information included within your proforma may be construed as legally binding. IT IS IN YOUR BEST INTERESTS TO CLARIFY ALL TERMS OF SHIPPING AND PAYMENT BETWEEN YOU AND YOUR BUYER BEFORE PRESENTING YOUR PROFORMA INVOICE.
FROM

The address and phone number of the seller.
DATE

The date the invoice was prepared and sent.
Reference No.

The buyer's reference number on the letter of inquiry.
Payment Terms

How the buyer is required to pay for the goods. Consider the risks associated with each term before choosing one.
Country of Origin

Country where goods are produced and sold.
Estimated Date Of Shipment

Usually 45, 60, or 90 days from the date the order is placed or the letter of credit is recieved. Consider how long it will take to buy materials and produce tscription

A specific and detailed description of the item so that the buyer knows exactly what they will be receiving. Include cubic volume in your description.
Unit Price

The price of one unit of the item.
Total Puct into a foreign market requires a blend of careful strategies. You will need to consider all you know about costs, documentating to the conditions of sale, insurance policies, meeting regulatory requirements, and packaging to make your export experience a successful venture for all concerned. Navigate the categories below to find out how to transport your product successfully.

Freight Forwarders

Freight Forwarders are international shipping specialists who you can hire for advice or assistance. They can also direct you to places where you can find answers.
Documentation

Accuracy and attention to detail are key here. Mistakes in documentation can lead to problems or delays in receiving payment.
Packing and Labeling

Your shipment will travel far through several modes of transportation, be jostled, and stored in several locations along the way. Customs agents will check marks to verify your product meets with foreign regulations.
Insurance

Your shipment is subject to many hazards, such as damaging weather conditions, and rough handling by carriers during its transport to the buyer. Insurance can protect you from such hazards.
Freight Forwarders
Every exporter has at one time or another used the services of a freight forwarder. A good international freight forwarder can save you time and money through its contacts and experience.
While it is always good practice to keep track of your own export transactions and recheck the process, your freight forwarder can act as your agent to move your cargo from origin to destination. Many smaller sized export companies, in fact, consider the freight forwarder the external shipping department to the company, essentially their travel agent for all export products.
The forwarder can act as adviser, stategist, even freight carrier and can arrange for payment on goods. Who you choose as your freight forwarder, therefore, is an important decision to make, one that can effect the profit margin of your foreign sales.

Roles of the Freight Forwarder
A good freight forwarder knows every aspect involved with getting your product overseas and collecting on your goods. Review the activities below to see how a freight forwarder can help you.
Preparing Price Quotations. A forwarder can help prepare your price quotation by finding the direct and incidental costs to factor into your quoting price. More importantly, a forwarder knows if and where to look to negotiate the best prices on these costs. Some of the costs a forwarder can determine are:

Packaging
Freight
Handling fees
Freight forwarding fees
Insurance
Duties
Port charges
Consular fees
Special documentation
Handling and Transportation. Improper packaging and labeling can mean disaster for your export scheme. Using the incorrect modes of transport can dwindle profits and waste precious time. A good freight forwarder can provide valuable assistance and advice to lower your risk and bring those odds on disaster to minimum.
Even though you are ultimately responsible to see performance under your transportation contract, a freight forwarder can lead you to the shortcuts. While each forwarder may specialize in one area more than another, the list below lets you know the many tasks in which a freight forwarder can assist you:

Act as shipper's agent under a power of attorney.
Advise on different methods of shipping, routing, and modes of transport.
Advise on best packaging for you product.
Arrange for packing, marking, and containerizing your goods at the port.
Research and negotiation for the best rates with carriers.
Book shipments on vessels and aircraft.
Arrange for loading and unloading of your shipment at the port.
Oversee on-loading procedures.
Issue delivery orders.
Arrange for insurance.
Arrange for receipt of Bill of Lading or waybill.
Track shipments and see them through customs.
Obtain consulate, legalization, and certification documents from the destination country.
Arrange for warehousing or delivery to buyer's location.
File damage claims with carriers or insurance companies.
Prepare documents for collection of payment under the letter of credit.
Provide messenger services.
Regulations. As an exporter, you must know the pertinent laws and regulations of both the U.S. and your buyer's country. It is a part of the freight forwarder's business to know those governing regulations and how to obtain U.S. and foreign licensing. You can find the freight forwarder's assistance invaluable at the time you apply for such licenses and to ensure you meet the criteria subject to the law of each land.
Documentation. A freight forwarder can ensure you have all the documents your shipment requires to successfully complete your export transaction. Your freight forwarder can:

Assemble all required documents.
Prepare export declaration documents.
Prepare consular invoices and legalizations.
Prepare bill of lading.
Prepare collection drafts.
Review documentations for accuracy and to make sure all is in order.
Ensure that goods comply with customs export documentation regulations.
Depending on the control you want over each shipment process, you can arrange with your freight forwarder to draw up each document subject to your approval before proceeding.
Getting Paid. Your freight forwarder can assist you in receiving payment as quickly as possible. First, by reviewing the letter of credit to see if the terms can be met; and second, by forwarding your documents to the bank for collection.

Do You Need a Freight Forwarder?
Consider the distance, handling, and cultural exchanges your product will make when deciding whether you need a forwarder. As a rule, you are better off allowing a freight forwarder to handle larger and more complicated shipments. Ask yourself the following questions to help guide your decision.

Is the size of the shipment large or small?

Small shipments require less detail to intricate shipping procedures. Large shipments necessitate more documentation and closer detail to cost-effective means of packaging, shipment arrangements, and handling.
Is your shipment of high value or low value?

Shipments of lower value require less complex payment methods. Shipments of higher value usually require making arrangements for payment and drawing up special documents to correspond to the financing agreement.
Is the delivery date a condition of the terms of the export transaction?

If so, an experienced freight forwarder can determine the best way for your shipment to arrive on time.
Are there unusual circumstances involved with your shipment?

Perhaps you will be dealing in shipments of non-typical material characteristics. Examples of such are over-weight shipments, requiring special packaging, controlled substances subject to special shipping, regulations and documentation. A freight forwarder will know what you need.
Is the foreign market you are entering susceptible to trade barriers?

If you are an inexperienced exporter, a freight forwarder can guide you in the best ways of entering a foreign market that imposes trade barriers or restrictions.
Does your company have an experienced shipping department?

If you company is large and you have established a shipping department, you may not need the full services of a freight forwarder. On the other hand, many smaller companies consider their freight forwarder as their own shipping department.
How frequently do you ship to certain destinations?

If you are shipping to a specific destination frequently, you may be able to set up standard procedures for preparing documents and arrange for shipping in-house. Keep in mind you will need to stay apprised of changes in export regulations! If you ship to particular destinations infrequently, the use of a freight forwarder may be less costly than arranging for shipment yourself.
Can you afford a freight forwarder?

Although freight forwarders are relatively inexpensive, you may be able to find better shipping rates on your own.
*Source: Fast Track Exporting by S. Renner and W. G. Winget.

Finding a Freight Forwarder
The following resources can help you locate freight forwarders.

Go to the USDA's Freight Forwarders Online Directory.
Visit the National Customs Brokers and Forwarders Association of America website.
Visit your local U.S. Department of Commerce office and ask for a list of forwarders that handle both air and ocean shipments.
Check your Local Yellow Pages under "Freight Forwarders".
Ask an experienced exporter who deals in similar products as yours for a reference to a good forwarder.
Choosing a Freight Forwarder
Using the right freight forwarder can save time, money and establish a more competitive base for your product. Using the wrong one can send you in the opposite direction. If you've decided you could use the assistance of a freight forwarder, you must find one that suits your needs. This section covers the criteria for determining if the freight forwarders you select are appropriate for your type of product and the shipping destination.
Some forwarders are more familiar with certain aspects of trade than others. Therefore, it is a wise business decision to interview each forwarder focusing on the following questions. Consider each before choosing which forwarder to use.
Does the freight forwarder:

Have an office near your shipping port?
Have experience handling your type of product and shipping to your market?
Have experience with the type of carriers you require?
Have a good credit rating?
Have favorable shipping rates and delivery schedules?
Receive good recommendations from carriers?
Belong to a professional association or organization?
Have expertise shipping to your buyer's country?
Have a reputation for friendliness, competence, efficiency, reliability, cost-effectiveness, trustworthiness, and using fair business practices?
Is the forwarder bonded and licensed by the Federal Maritime Commission or Cargo Network Services?

Freight forwarders must be bonded and licensed through the Federal Maritime Commission (FMC). In fact, they are regularly audited by the FMC. Many air freight forwarders belong to a Cargo Network System or Civil Aeronautics Board. Some forwarders specialize in both air and ocean shipments or may act as a Non-vessel Operating Common Carrier (NVOCC), a freight consolidator.
Are the forwarder's fees reasonable?

Fees for freight forwarders can fluctuate with the value of shipment, subject to negotiations and commissions on freight rates. Certain forwarders receive commissions from shipping companies for selling cargo space if qualified as a NVOCC. The negotiated savings can be passed on to you as a part of the priority and rates established on the forwarder's volume shipment. Certain out-of-pocket expenses, such as messenger fees, telex and telephone, direct overhead, etc., are billed separately.
Be sure to find out what services are free of charge. Are there documents you can prepare yourself to defray costs? Find out what the fees are for preparing documents such as pro forma invoices, commercial invoices and packing lists.
For the most part, freight forwarders are independent businesses competitive in rates and scope of services. Taking bids> from forwarders from time to time gives you a chance to compare pricing in the industry.

Developing Export Strategy

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This section details issues involved in entering the foreign market, finding and developing trade leads, exporting directly and indirectly, pusuing international bid opportunities, managing and motivating distributors, promoting your product and traveling overseas.

Once a detailed market analysis has been completed, your company should develop a method of market entry. Each of the general categories listed below come with their own unique trade-offs between financial risks, product control and organizational goals.

The indirect methods of market entry usually require less marketing investment, but you could lose substantial control over the marketing process. Direct exporting may necessitate larger capital investment in marketing, but your degree of control over export strategies is greater. Corporate presence is an option for companies with successfultest marketing.

Direct Exporting

You can sell directly to customers in foreign markets by establishing an export department within your organization. Selling through your company's sales department creates an opportunity to establish a closer relationship with the overseas market and buyer. In addition to selling directly to the market you wish to penetrate, you may also choose to use an export manager to handle other parts of the world. In fact, in some countries, you cannot sell directly to the end-user, you must use a local agent or representative. This is true in the Middle East, Central America, and in some Asian countries.

Other direct exporting options include using a variety of exportintermediaries, as shown below.

Manufacturer's Representative or Sales Agents

Generally, a representative or agent refers to a person who is responsible for closing the sale and taking orders on a commission basis. They do not take financial responsibility or collect payment for the goods sold, and they assume no risk or responsibility for the product. Remember that the primary interest of all salespeople is to make the sale, it is your responsibility to check credit and arrange payment terms. A representative will want a contract from you for:

Guaranteeing Territory
Exclusivity
Method of Compensation
Term of Service
Representation of the Product Line for a Definite Period of Time

In most instances, the representative will be servicing both local and import accounts, as well as selling complimentary lines that do not compete. The representative utilizes the product literature and samples that you supply.

There is some controversy over the term agent. Depending on the country, the term carries a rather broad interpretation of legal responsibilities involving the agent's independent activity to contract on your behalf without your instruction. Avoid using the term agent. Any contract should clearly indicate legal authority of the representative to obligate the firm.

Foreign Distributor/Importer

The foreign distributor purchases the product and is always responsible for payment of the export item. They assume financial risk and generally provide support and service for the product. Distributors often buy to fill their own inventories and typically carry a range of non-competitive, but complementary products. Beware, some distributors have been known to take on products they purposely don't sell to check competition.

The distributor should maintain adequate facilities and staff for day to day servicing. Investigate this option if your product requires maintenance or spare parts. Payment terms and length of contract time are usually initiated with a short trial period. Territory exclusivity is normally required by the distributor.

Overseas Retailers

Selling directly to a foreign retailer relies mainly on traveling sales representatives. Another distribution alternative uses overseas buying offices of domestic retailers. These buyers can also be a practical source of foreign distribution for American manufacturers. Print based selling techniques that use catalogs, product literature, and brochures can also reach the marketing base of foreign retailers and they reduce the cost of traveling.

Product sales are usually limited to consumer goods which can be sold at a lower price, reflecting the absence of a representative's commission. It is recommended in Exporting From Start to Finance (Wells, 1995) that you sell to the retailer at a price flexible enough to allow you to pay a representative in the future. In general, stores are more willing to select the service of a representative who places the order for them, and services their account with follow-up channels of communication.

Central Trade Offices and Trading Companies

Buying offices or central trade offices are often divided into industry groups that buy for the whole country in some of the few remaining controlled market economies. China is the largest controlled economy that maintains trade and buying offices, often called Foreign Trade Corporations. They may buy for the whole country or for regional groups and provinces. Chinese trade organizations do most of the negotiating and contracting, which reduces the risk of bargaining with lower level officials who do not have ministry approval.

Native to Japan, general trading companies, called "Sogo Shoshas", set market trends for Japan's internal and external trade. These trading companies can be a valuable resource for businesses who are seeking to participate in the Japanese market. Major trading companies usually have offices in the United States, however, they may have to send a sample to Japan for final approval. Allow time for product transportation and evaluation.

Indirect Exporting

While direct exporting may be a profitable method of foreign market entry for some businesses, sale by the exporter through an intermediary may be a better alternative to the complex tasks and risk involved in direct exporting.

Domestic Intermediary

Export Management Company

An Export Management Company (EMC), functions as an "off-site" export sales department, representing your product along with various non-competitive manufacturers. The EMC searches for business for your company and usually provides the following services:

Performs market research and develops a marketing strategy
Locates new and utilizes existing foreign distributors or sales representatives to put your product into the foreign market
Functions as an overseas distribution channel or wholesaler
Takes title to the goods and operates on a commission basis

Note: The EMC may or may not take title to the goods; it depends on the arrangement between the EMC and the manufacturer. In addition, an EMC must balance the product lines it represents. Product diversification is essential to protect against radical foreign market changes and maximize economies of scale.

Export Trading Company

Export Trading Companies (ETC) are very similar to Export Management Companies. The ETC is more likely to take title to the product and pay you directly, but like an EMC, they can also act as an export department. Usually, there is less responsibility on the part of the ETC towards the supplier and they tend to be demand driven and transaction oriented.

There is legislation which promotes the use and formation of an EMC or ETC by providing the EMC/ETC with immunity from prosecution from antitrust regulations. It permits banks to invest financially in EMCs/ETCs and reduces restrictions on trade financed by financial institutions. Officially, an ETC is a legally defined entity under the Export Trading Company Act, with specific responsibilities and obligations. In contrast to an EMC, an ETC is very difficult to set up. There are special certifications and requirements, along with detailed paperwork.

An example of an ETC is Mitsui; they buy and sell goods on their own behalf for their clients. Before deciding to use an EMC or ETC, consider these pros and cons.

Advantages and Disadvantages of Using EMCs/ETCs

There are advantages and disadvantages to using an EMC or an ETC. Wells (Exporting From Start to Finance), gives credit to the research of several accounting firms summarized by Catharine H. Findielson of Coopers & Lybrand in Washington, D.C.

Advantages of Using an EMC/ETC

Faster entry into the overseas market in terms of first recorded sales.
Better focus on exporting, because most firms give priority to their domestic problems.
Lower out-of-pocket expenses.
An opportunity to study the methods and potential of exporting.
Expertise in dealing with the special details involved in exporting, as well as its strategies.

Potential Disadvantages of Using an EMC/ETC

Loss of control of the export strategies and quality control of after-sales service.
Competition from the EMCs/ETCs other products.
Reluctance on the part of some foreign buyers to deal with a third party intermediary.
Some added costs, and higher selling prices because of gross profit margin requirements of the EMC/ETC, unless the economies of scale can be used to off-set this factor.
The possibility of the EMC/ETC neglecting the client's product in favor of other products that might be more profitable and easier to sell.

Overseas Intermediary

Licensing

Licensing offers a small business the advantages of rapid entry into foreign markets as well as reducing the capital requirements to establish manufacturing facilities overseas.

As described in Exporting from Start to Finance (Wells, 1995), a license is basically a contract to identify what part of the licensor's trademarks, patents, designs, copyrights, and know-how are being licensed.

Important considerations:

Be careful to protect trademarks and intellectual property by securing proper patent and trademark registration before signing a licensing contract.
Make sure agreements are not in violation of the host country's existing trade/product regulations or restrictions.
Don't wind up a competitor to your own product by having your own design or know-how used to compete in territories which you are selling directly.

Although the major disadvantage of licensing is the possibility of losing control over manufacturing and marketing, many times you can learn much more from your licensees by giving attention to original product improvements.

Franchising

According to Wells, in the United States franchising accounts for more than 35 percent of total U.S. retail sales. Although this rate has slowed over the last few years, international expansion is occurring in nearly every world region. Most companies already have successful domestic operations, with the most popular franchises occurring within the restaurant and retail sectors.

Franchise agreements tend to give the franchiser more control over marketing, since it is the company's reputation and existing market relationship that adds value to the product. With almost any overseas arrangement, distribution approaches must incur expenses to support foreign marketing such as advertising. However, the overall investment by franchisers is much less than for company-owned sales outlets.

Companies like McDonalds and Coca Cola are prime examples of success in overseas markets. Japan, Europe, Australia and Asia are increasing their franchise development. Canada is also a high-ranking country for goods sold through franchise outlets, largely due to its location. The United Kingdom claims over 2500 franchise operations.

Contracting

Agreements with foreign manufacturers to produce your product, as opposed to exporting to the overseas region, are referred to as contract manufacturing. It is an easy foreign market entry method when your manufacturer is already producing your product for the domestic market. It can also be the initial instrument used to create a subsidiary company in a foreign country. Although it is a method of indirect distribution to foreign markets, it does not address sales and marketing issues of the finished product.

Issues to consider:

How much intellectual knowledge should you deliver to the manufacturing firm to make contracting possible.
Quality control at overseas production facilities.
Lack of control over geographical, cultural or economic conditions.
Third party disclosure of confidential product information.

In contrast to licensing, contract manufacturing does accommodate company management roles in the foreign operation. However, you will also have to interact with entirely new management, located in a different country, whose first language is probably not English. Regardless of these disadvantages, the contracting manufacturer will have knowledge of the foreign market as well as the business and political contacts to facilitate market entry.

Other Intermediaries

Piggyback Marketing

A company which already has an export distribution arrangement established may need to provide other goods or services to supplement the product. Permitting another company to market your product or service along with its own is called "piggyback" exporting. This type of exporting works well with accessory type products (computer hardware/software) or follow-up services where a third party adds value to the distribution system by offering a more complete solution to the foreign market.

Export Merchants

These remarketers purchase and then re-package products (usually under their own label) to establish exclusive markets and customers. The main disadvantage of using export merchants is that your company could lose control over product pricing and marketing in overseas markets. Care should be taken to track the territories the remarketer's products are reaching to avoid interference with current export activities.

Corporate Presence

Entering the foreign market by establishing an overseas presence requires careful planning and legal guidance. Corporate presence decisions that involve the establishment of a foreign subsidiary as the primary method of selling to an international market are on the rise for both small and large companies. However there are alternative approaches to foreign distribution.

Alternative Distribution Approaches

Joint Venture

Joint ventures bring together a foreign company and an American company with similar goals to establish a market entry and a distribution network. Each partner brings specialized skills that make significant contributions to manufacturing and distribution capabilities.

Unique features of joint ventures include:

Joint ventures can be equity or non-equity partnerships.
In some countries, a joint venture is the only way an American company can set up operations.
Host country laws often require a citizen from that country to have a percentage of ownership.
Both partners make substantial investments into the venture.

Unlike licensing, joint ventures require a direct investment for management, technology transfer, training, and foreign relations. However, in a joint venture agreement, your company is in a position to expand resources, export experience and market knowledge while spreading the risk and laying a distribution framework. There are also several forms of tax advantages or waivers offered by foreign countries for joint ventures.

Strategic Alliances

Strategic Alliances is a broad term used to refer to alternative alliances, other than joint ventures or subsidiaries. An alliance is a form of presence in the overseas market that represents more than a simple buy/sell agreement. It has a well structured purpose, shared management strategies and financial goal. Companies that form strategic alliances do not necessarily create an independent business organization. For example, a strategic alliance may take the shape of any one, or combination of the following agreements:

Intellectual/Technology Sharing
Cross-Licensing
Distribution Arrangements
Equity
Product Development Coordination

Many small businesses view strategic alliances as an alternative to capital intensive investment approaches to foreign market entry.

Subsidiaries

In contrast to a joint venture agreement, a subsidiary agreement guarantees control over all decisions involving marketing and production. Its technologies, patents, trademarks, and know-how have the maximum protection available under the host country's laws. (Exporting From Start to Finance, Wells, 1995).

A subsidiary is treated the same as host company operations in terms of benefits, regulations and taxes. For obvious reasons, there are choice places in the world to consider for jointly or wholly owned subsidiaries and manufacturing facilities. Factors to consider range from low labor costs and government regulation to tax and economic incentives.

Expert legal advice is recommended to determine true advantages of the subsidiary agreement within the laws and customs that are unique to the host country.

Finding Trade Leads

After deciding to pursue export methods for your product, you need to develop leads to opportunities with end users, distributors, and potential joint venture partners and representatives. If the buyer or end user is readily identified, this is simple. However, sometimes it is necessary to identify leads for the required buyers, distributors, representatives, or joint ventures. These are often available from a variety of government, public and private databases, programs, and electronic resources. Promotion Service Centers provide ample opportunities for finding trade leads, and the Trade Information Center at 1-800-USA-TRADE is another excellent resource.

Government agencies and sources are available from federal, state and local agencies. Private agencies and sources include chambers of commerce, business associations, trade shows, and traditional media sources. Electronic sources, including the Internet, represent the newest, fastest growing, and potentially most promising mechanism.

Government Agencies & Sources

The primary avenue for leads in the government sector is from agencies of the Federal government such as the Department of Commerce (DOC). The DOC coordinates services, publications and trade shows. Additional sources are available through state and local governments, although not as extensive. Many of these services are available at little or minimal charge. Read on for more information about government agencies and sources.

United States Department of Commerce

The Department of Commerce (DOC) identifies and qualifies leads for potential buyers, distributors, joint venture partners and licensees from both public and private sources. In addition to its own product, country, and program experts, the DOC utilizes an established network of commercial officers located in countries that represent 95 percent of the market for U.S. products.

The services available through the DOC are divided into Contact Programs which provide lists of prospective contacts and Trade Event Programs which facilitate in-person contact between potential buyers.

Up-to-date lists and specific dates are available from the nearest Commerce district office. You can also can contact the Export Promotion Service, U. S. Department of Commerce, 14th Street and Constitution Ave., N.W., Washington D.C.; telephone (202) 482-2505.

United States Department of Agriculture

The USDA utilizes an organization of embassy officers and attaches, trade officers, analysts and marketing specialists to provide the following services:

Trade Assistance and Planning Office: Information source for foreign market conditions and making contacts.
High-Value Product Services Division: Promotes U.S. Products overseas through several programs including:

AgExport Connections: Provides trade leads through printed and electronic communications, foreign buyer lists, and promotions of U.S. Products to overseas buyers.
Trade Leads: Electronic and print dissemination of current trade opportunities.
Foreign Buyer Lists: Specific information regarding overseas buyers that have previously indicated interest in U.S. products.
Buyer Alert: Weekly newsletter and promotional service for exporters.
Commodity and Marketing Programs: Supplies information on specific commodities including marketing information, market needs and consumption, and available supplies.

United States Agency for International Development

USAID is responsible for the majority of the U. S. Foreign economic assistance programs. As such, it offers a conduit for the export of U.S. services and goods. Opportunities are available for the export of commodities, expertise, and equipment. Additionally, the use of USAID funds overseas opens avenues for the purchase of U.S. goods and services.

United StatesTrade Development Agency

The USTDA is an independent government agency that funds feasibility studies, analyses, and training programs in emerging overseas markets and Eastern Europe. Its contracts have to be assigned to U.S. companies. TDA activity is primarily oriented to determining the viability of markets available for export of U.S. goods and services. This gives rise to many opportunities for analysts, consultants, and managers. Additionally, those involved in the program obtain a "leg up" on competition through the development of market expertise and contacts.

State and Local Governments

Many state and local governments will provide assistance to potential exporters although this will vary by locality and product. There is often a specific alliance between certain state and local governments and specific overseas counterparts such as "sister cities." Services often include:

Trade Leads: Usually available from agencies of state and local governments such as the California Office of Export Development.
Mission Planning Assistance and Introductions: Frequently available at the state level in conjunction with trade shows arranged to showcase a variety of goods and services native to that state.
Promotional Assistance: Many state and even local governments realize the benefits to their economies by promoting exports for your organization. Several fund print and electronic materials as well as hosting trade shows and supporting trade missions.
Existing Contacts: As with other government agencies, a database of previous contacts and interested parties are maintained by state and local government agencies from their prior activities.

Most of the government sector activity is confined to the federal level, particularly the Department of Commerce. Other agencies may be more appropriate resources for your product and should not be neglected.

Private Agencies & Sources

Existing business relationships and associations provide another avenue to making export connections and obtaining leads. These include:

Banks and other Financial Institutions: Most larger banks and financial institutions are now multi-national, have correspondent relationships with overseas counterparts, or maintain a department to handle foreign financial transactions. These can frequently provide leads and introductions to overseas markets.
Business Colleagues: Business colleagues with existing relationships and firsthand experience may give personal recommendation or introductions to prospective representatives, buyers, or distributors.
Trade and Industry Associations: Trade and industry associations are an excellent opportunity to share information and contacts with those having similar interests and contacts.
Trade Shows and Missions: Trade shows and missions are one of the best ways to not only share information onal expertise.
Chambers of Commerce: Chambers of Commerce are normally involved in trade shows and missions. They maintain a database of contacts for those expressing interest in U.S. exports. Frequently, Chambers of Commerce maintain "sister" relationships with overseas chambers in se they place ads in trade journals.
Trade Directories: Publications such as Trade Directories of the World by Croner Publications provide lists of trade associations and facilitate contacting established entities interested in exports/imports.
Brochures and Catalogs: Brochures and catalogs exhibiting your company and/or products not only provide information but can also promote through a variety of other sources such as trade shows, catalog shows, and direct mail or contact with buyers, distributor, or representatives.
Telephone Books: Telephone books can often be obtained through an embassy or banking contact if a specific target market has been selected.
Posters and Billboards: In many countries, particularly Latin America, posters, billboards, and ads on buses, taxis, and sports arenas serve well to advertise the benefits and availability of your products.
Foreign Trade Association Newsletters: The correspondence available from overseas can also provide leads regarding perceived needs and requirements in those markets.

Television and Motion Pictures

Television and motion pictures can serve to elicit interest in several ways:

Primarily, direct advertising reaches a broad market quickly.
Secondly, the display of your product in a successful motion picture or television production can provide not only exposure, but also demand.
Finally, current methods of telecommunication permit the interactive review of products and their features with potential leads.

Electronic Media

Electronic formats have the potential to accommodate all and replace many of the existing ways to locate leads. Electronic access to all previously listed government and private services, events, publications, and foreign associations is available.

Finding An Overseas Representative

Once you've determined that you want to export directly, instead of indirectly, you must decide if you want to sell through an agent (often called appointee) or a distributor (also called dealers, jobbers, wholesalers, and sometimes even retailers). There is a substantial difference between the two categories both legally and functionally. It is often difficult and expensive to unwind from established relationships, therefore it is important to carefully determine the correct connection for your exporting efforts. Once this is made, you need to locate, select, screen, and reach an operating agreement with your contact. Follow the links for more information.

Decide if you need an agent or distributor.
Compile a list of possible representatives for each market.
Contact potential representatives describing your intentions.
Evaluate each potential representative's reputation, capabilities, and financial status.
Draft and execute agreement.

A thorough analysis of your needs and requirements, as well as a comprehensive search, evaluation, and selection are critical to the success of your marketing effort. Remember, the time spent here is time well spent and the completeness of your search will reflect in the performance of your export program.

Agent or Distributor?

The decision whether to use a distributor or an agent is a substantial one and vital to the nature of your overseas efforts. The success or failure of your export effort will depend upon this decision. Consultation with your legal counsel, the practicalities of your export requirements, and the traditions of the country you are exporting to will have substantial bearing on your decision. The time and effort spent up front in your evaluation and determination of the correct avenue will greatly benefit the success of your export program.

Representation of any kind in a foreign country is much like a marriage, it can be easy to get into but often difficult and expensive to terminate. If you are not confident in your selection of a representative, sell directly to retailers or other end users until the right one is located.

Use an Agent if:

It is the accepted distribution method in the country you are exporting to.
You do not need to maintain inventory in the foreign country. For example, if you manufacture custom or capital equipment, sell services, or can have inventory shipped direct for individual orders, you probably do not need to keep stock and maintain a distributorship program in the foreign country.
You want to maintain direct control of the sales of your products overseas. Since agents sell the product on behalf of the exporter, they must sell it at the exporter's price, under specified conditions, and with prescribed representations.
You intend to benefit from corporate identity and intend to conduct business under your own name.

Use a Distributor if:

It is the accepted distribution method in the country to which you are exporting.
You need to maintain inventory on the foreign country and do not want to maintain your own distribution network.

Compile Potential Representative List

Once you've determined that you will use a representative, you must locate possible candidates to act on your behalf. These are available either through government sponsored or private sector programs, databases, business contacts, and a host of other methods. One of the best sources that can minimize your search efforts is the Department of Commerce Agent/Distributor service. If your product has 51% or more U.S. made content, the DOC will send your product literature to the specified foreign country, conduct a search, and prepare a report identifying up to six foreign prospects who have examined your literature and expressed interest. Read the following for information on additional sources

Government Assistance Programs

The primary avenue for leads in the government sector is from agencies of the Federal government such as the Department of Commerce (DOC). The DOC coordinates services, publications and trade shows. Additional sources are available through state and local governments, although not as extensive. Many of these services are available at little or minimal charge. For California exporters, Trade Promotion Service Centers can provide counseling and resources to help you find distributors.

Private Agencies and Sources

Existing business relationships and associations provide another avenue to making export connections and obtaining leads. These include:

Banks and other Financial Institutions: Most larger banks and financial institutions are now multinational, have correspondent relationships with overseas counterparts, or maintain a department to handle foreign financial transactions. These can frequently provide leads and introductions to overseas markets.
Business Colleagues: Business colleagues with existing relationships and firsthand experience may give personal recommendation or introductions to prospective representatives, buyers, or distributors.
Trade and Industry Associations: Trade and industry associations are an excellent opportunity to share information and contacts with those having similar interests and contacts.
Trade Shows and Missions: Trade shows and missions are one of the best ways to not only share information with other exporters, but provide the opportunity for direct contact with interested buyers, representatives, distributors.
Export Seminars: Seminars oriented towards exporting offer yet another opportunity to meet like-minded and experienced producers as well as develop additional expertise.
Chambers of Commerce: Chambers of commerce are normally involved in trade shows and missions. They maintain a database of contacts for those expressing interest in U.S. exports. Frequently, chambers of commerce maintain "sister" relationships with overseas chambers in selected markets as does the California/Canada Chamber of Commerce.
Miscellaneous Contacts: Many times contacts can be made through unexpected sources such as freight carriers, shipping agents, airlines, commodities brokers, port authorities, and others can be a valuable source of information, contacts, and leads.

Electronic Resources and Other Media

Current technology enhances the distributor search effort by giving you access to the Internet and World Wide Web. Several programs can be accessed through the Web and will be instrumental in your search. You may also have some success using directories at a library with an extensive international business section. Have the librarian locate directories of importers for the specific countries you are interested in and scan them for products for your particular industry.

Contacting Potential Representatives

Having obtained a list of contacts of potential representatives, the next step is to establish contact to determine those who might be available and have interest in acting in that capacity. The best method is the face to face contact which is available during trade shows, trade missions, and foreign travel. If this is not practical, communicate through written correspondence. Contact representatives through letters, telephone or telefax, cables, or for many, through the electronic medium.

Download the Initial Letter To Potential Export Sales Representative (50k PDF), a sample letter to use as a guideline in your initial contacts with distributors. Remember to use the BACK button in your web browser to return to this page.

Use this sample as a guide in developing your own communications under the review of your legal counsel. If the communications can be drafted in the language of the foreign country, that will be even better. Initial communications should convey the following, at a minimum.

Background information on your firm
Information regarding your product
The type of sales representative you are seeking
Available information regarding your target market and/or end user
Deadline for securing representation in the local market

Take care that you don't make an offer or imply a contract, instead your communication should be a solicitation for a proposal. Keep track of your communications and responses. If you do not have a response from your contact within 30 days of your first efforts, send a follow up letter. If there is still no response within another 30 days, consider placing this contact on your inactive list.

Evaluating Potential Representatives

As previously stated, the arrangements you make with your representative are critical to the success of your marketing efforts. Too little care in evaluating and selecting your representative may be regretted later. You want to know as much as possible about your contacts to make informed decisions and assure mutual compatibility. At a minimum, you should consult the following information when available:

Background Information on the Representative

The more information available to you on a prospective representative, the better. At a minimum, you should inquire about the following:

Company letterhead
History and experience, particularly with similar products or industry
Qualifications of principals and/or officers
Adequacy of personnel, facilities, and resources
Availability of the resources to meet your requirements
Current sales volume and size of inventories
Territories they cover
Product lines they carry (including competing or complimentary products)
Customer base
Current clients
Past Performance
Familiarity with U.S. business practices
Nature of Sales force
Media resources

Third Party Evaluations

Often, evaluations are made by independent companies and agencies. Several reports are published by Dun and Bradstreet and Graydon.

Bank and Trade References

The relationship a contact has with his bank, as well as the extent and nature of credit availability, types of accounts, and history, are often indicative of the prospect's business practices and history. Additionally, trade contacts such as suppliers, shipping agents, customs brokers, etc. can provide valuable background regarding the history, strength, integrity, and reliability of the contact.

Current Business References

One of the best ways to explore how you might expect a relationship to proceed can be indicated by those your prospective representative has current business relationships. These can be other exporters currently utilizing this source, accountants and legal firms, and industry and trade associations.

World Traders Data Report and Commercial Credit Reports

Credit reports are often available from commercial sources such as TRW. They can provide information regarding your contact's financial strength, payment histories, and other relevant financial data. The Department of Commerce prepares the World Traders Data Report which focuses on the background, number of employees, types of product handled, and years in business.

Refer to the Checklist For Evaluating Potential Export Sales Representatives (56k PDF) to guide your evaluation. Use this checklist as a basis to create your own checklist oriented to your product line, target market, and selected method of representation. Follow it conscientiously for all your prospective representatives. Carefully analyze and compare the results and use them to select the preferred contact. Keep in mind during this evaluation the prospect's integrity, qualifications, and reliability.

Draft & Execute Agreements

After selecting your representative, the next step is to draft and execute a definitive contract or agreement which will serve as a basis of documenting your understandings and responsibilities. This must be done in concert with your legal counsel due to its importance to the relationship with your representative and your legal liabilities both in the U.S. and in the foreign country.

As a general rule, the following items should be included in every agreement:

Names, addresses, nature and relationship of parties
Product description
Definition of territory
Exclusivity conditions
Basis for compensation
Product pricing agreements
Sales goals and market share expectations
Nontransferability of assigned rights
Confidentiality agreements and understandings regarding prohibitions in dealing with competing products
Jurisdiction regarding agreements and their enforcement
Responsibilities for advertising, ordering, inventories and delivery, maintenance, warranty work, and other relevant operating concerns
Term of the agreement and provisions for modification, cancellation, extensions, or renewal

Consultation with your legal counsel is critical in any written contract. Since legal systems, customs, and regulations differ throughout the world, co-counsel knowledgeable in the practices of the foreign country may also be necessary. Contracts and agreements can be quite extensive but must be as thorough as possible to preclude misinterpretation of intent and subsequent controversy. Due to the dynamics of relationships as well as marketplaces and global politics, modifications will probably be required over the life of the agreement and you should be prepared for that necessity.

Managing and Motivating Distributors

Successfully managing your distributors is a top priority for profitable international trade. If your linkage to international commerce is through your distributor, he or she represents your company. When your distributor prospers, you prosper, if you provide quality products with profit potential. The key components outlined below motivate the distributor to work with you. Always keep in mind that it is a two-way relationship with reciprocal expectations.

Quality Products and Exclusivity

Quality Products

If a product is defective after it is sold, the distributor incurs both a monetary cost and an opportunity cost. The inconvenience goes beyond the time involved to ameliorate return and replacement factors. Regardless of the fact that you will replace the product at no cost, handling defective parts can be very costly in foreign trade due to shipping and duty fees.

Your quality products should be:

Trouble free and carry warranties.
Unique to the intended target market.

Modify when necessary and stay ahead of competitors within the target market.

Delivered with appropriate, quality packaging.

Use proper language, colors, symbols and designs that are suitable and inoffensive in your market.

Supplied with high quality advertising and sales promotion techniques.

For example, catalogs, brochures, display cases, banners, window cards, illuminated signs and fliers can be provided in lieu of advertising dollars.

Accompanied by easy to understand user manuals, information or instructions.
Patent or trademark protected.

It is your responsibility to take legal action against counterfeit merchandise brought into the target market and ensure your product will not be illegally imitated.

Exclusivity

Your distributor will want exclusive rights to your product with full control over his or her geographic territory. However, you cannot guarantee that sales to third or fourth parties in the United States will not find their way into foreign markets. You cannot terminate an agreement with a U.S. customer simply because they resold your product in a foreign market.

One way to counter the inability to guarantee absolute exclusivity is to offer lower, preferential prices. You can also make a commitment to work with the foreign distributor to resolve problems of interference from competitors while discussing exclusivity of your product in advance.

Sales, Prices and Profit Potential

A good distributor will have business expansion plans. Focus on the distributor's sales, not his purchases from you. Increasing sales and profit growth are essential to business expansion. Accurate sales records signal market trends and slumps that help you stay ahead of the rest of the competitors in the marketplace. Compare sales growth records to other market indicators such as inflation, GNP, and data on consumer purchases.

Motivate your distributor with reasonable payment terms that include periodic requests for payment delays. Temporary payment terms during an economic slump or natural disaster is an effective way to build good will and establish loyalty.

Managing advertising and sales promotions is also a critical factor of basic planning and forecasting. With your assistance, your distributors should develop periodic marketing plans. A marketing plan is necessary from your distributor so you can properly plan for advertising, sales promotions, and seasonal buying patterns. You can help your distributor plan for special sales and new product introductions as well as competitive trade-in programs.

Pricing

Sales and profit potential are the responsibility of the distributor. It is his responsibility to know the unique characteristics of his territory and be able to sell your product profitably within the existing system and methods of his market. In return, the distributor expects you will offer him the lowest price possible because:

The best competitive advantage in the market place is the lowest price.
He will have to take on some of your normal selling costs.
Your product accumulates additional price increases as a direct result of overseas transportation, duty and distribution fees.
Price discounts can be based upon the annual sales volume by the distributor, a single, large purchase order, cash payments, or large contract/sales opportunities.

Effective Communications

Effective communication techniques can build strong overseas relationships. Two important communication factors to consider when managing and motivating your international distributor are:

Your personal relationship with the distributor. Establish a rapport with the top person of the distributorship. That person has the power to make major decisions and effect change.
The cultural differences between countries. This includes socially acceptable practices, work ethics, language, religion, business ethics, attitudes, and values. Successfully working in an environment with cultural differences requires patience and a willingness to understand different cultures.

Periodic Visits

Overseas travel is very important, in fact, the only way to fully understand your foreign target market and foreign distributor is to visit them regularly. Relying on electronic or written communication can negate the factual evidence provided by on-site visits, research and interviews.

Every distributor expects you to visit their market, he or she may also expect your technical experts, developers, and managers to visit as well. Spend several days learning about the problems and opportunities in that particular market. Utilize direct sources of information, attend trade shows, visit with top management, and be sure to include some contact with the end customer.

Updates

Establish a communication plan that:

Keeps your distributor informed.
Provides periodic new information about your product, company or industry.
Follows the 24 or 48 hour rule of responding. Always get back to inquiries and complaints within two days.
Avoids miscommunication by providing frequent information regarding invoicing, commissions, competitive updates and market analysis.
Informs your distributor of primary sources of help and information for opportunities with specific products.

Correspondence

Frequent communication is essential between you and your foreign distributor. A vital component of communication is quick response. The worst action you can take in international trade is no action. Timely and accurate administration of correspondence is expected not only with you but also your co-workers and managers. It can be in the form of:

Personal visits
Phone
Facsimile machine (fax)
Mail
Electronic communications (Internet via e-mail)
Telecommunications

The most widely accepted language is English, however for most of your distributors English will be a second language. This makes effective communication a requirement to overcome language differences.

Training

Training support and materials will be expected by your distributor for the operation and sales features of your product. These materials can take many forms. Pamphlets, fliers, manuals, videos, onsite training visits, and slide presentations can be especially useful. Sales force training should include product and application knowledge, sales skills, and basic market research elements that identify customer profiles and product competition.

The same support expectations apply towards after-sales service and repair methods. Technical training to support after-sales service in the exporting country should include:

Troubleshooting
Repair and Testing Procedures
Repair and Complaint Reporting
Warranty Program

After-Sale Service

When considering service options, there are three basic options for providing after-sales support:

Train and assist your distributor to provide service.
Train an independent agency to provide service.
Relocate your own staff to service the foreign market.

These after-sales service departments can be structured to be profitable depending on market factors. However, a fast and efficient service operation will reduce additional costs to the end user while keeping a competitive advantage in the foreign market.

It is to your benefit to have a flexible and swift repair system. Plan for spare parts and replacement items which may cost your distributor in the form of additional freight and/or duty fees.

Collaborative Work Effort

Motivating and managing your distributor should generate a two-way relationship. There are certain services and responsibilities you expect from your distributor and the distributor in turn expects certain services and responsibilities from you. Working together or "partnering" can be beneficial from both sides. Use the following managing and motivating themes to build a collaborative relationship.

Work with the distributor on a regular basis. Avoid surprises, review sales figures and inventory data on a regular basis.
Develop a marketing plan every year with your distributor. Jointly work on periodic reviews and revisions of the marketing plan.
Schedule international sales meetings when necessary for new product launching or other special events.
Ask for new product ideas from your distributor. Modify your product accordingly to stay competitive within the market.
Try to work out differences. Changing distributors can be costly and lead to the end of product representation in that market.
Be flexible, blend your management style with your distributor's when necessary.
Be honest and sincere when interacting with your distributor.

Recognition and Sales Conferences

Recognition

Methods of motivating and encouraging your sales staff require special consideration for your overseas distributor. Rewards, incentives and recognition may take many forms, but consistent periodic recognition is essential for a positive overseas sales environment.

Depending on the nature of your foreign market, some methods of recognition might include:

Print based recognition in the form of a prestigious plaque or certificate, announcement in the company newsletter, or recognition in the annual report or company profile. Use first names and business titles in the recognition.
Trips could include vacations with spouse or family, a visit to the company headquarters, or to trade shows, conferences and/or sales meetings. Some distributors may respond well to travel awards like golf or skiing.
Bonuses might include a cash award for personal recognition or an annual increased based on performance.
Entertainment, inclusion of spouses, and gifts of value might be an appropriate recognition in some countries. Records kept regarding preferred entertainment, favored restaurants or popular sports are useful. Keep a record of gifts presented in the past to avoid future duplication.

Notes on proper protocol will serve as the basis of your personal recognition program for your distributor. You must be very careful to set up rewards that are acceptable to the culture, customs and preferences of the foreign market your distributor represents. Sensitivity to the unique cultural attitudes towards a reward system will help build a sincere relationship of trust and friendship.

Sales Conferences

Sales conferences are an excellent source of motivation. They serve to inform, recognize sales efforts, and create new energy and enthusiasm. Your distributor will want to learn market updates, current product information, competitive sales programs, and new sales techniques. It also allows the distributor to meet with other sales staff or distributors of your product and exchange ideas and useful tips.

Pursuing International Bid Opportunities

One area that is frequently overlooked by U.S. businesses, except for our multinational giants, is the opportunity for bidding on international projects. As these become more prevalent and technology oriented, the aware manufacturer and service provider will find the arena quite profitable. The contacts and sources used here are also useful for finding trade leads, locating potential purchasers and partners, and obtaining market information. Therefore, they should not be overlooked by anyone seeking to enter the export market.

The primary organizations that are involved in the international bid forum are multilateral development banks (MDBs), the U.S. Agency for International Development, the United Nations, and a number of miscellaneous agencies and programs.

Multilateral Development Banks

A Multilateral Development Bank (MDB) is partially a development agency and partially a bank. It obtains its funding from contributions from a number of nations, hence the term multilateral. The U.S. government is a substantial contributor to most of the active MDB's. The purpose of the MDB's is to provide a funding source for less developed countries (LDC) that otherwise may not have the ability to borrow for needed projects.

As a lender to the LDC's, a multilateral development bank can then promote long-term and stable growth in those countries. It can also coordinate sound financial decisions and provide oversight to the LDC's and the developments that are the basis of the MDB loans. Therefore, a MDB is both a contact and conduit for you to research and bid on those contracts and subcontracts that will arise from MDB-funded develU.S. Department of Commerce. The five principal multilateral development banks are: the World Bank, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, and the European Bank for Reconstruction and Development.

World Bank
Inter-American Development Bank
Asian Development Bank
African Dev in touch with as many as possible.

The MDB Project Cycle
Become involved in the MDB project cycle as soon as possible to establish your interest and explore opportunities. The following are the cycle phases which are similar for all MDBs and require 12 to 27 months fr a one to two year process where detailed plans are developed and is a time when bid participants and contractors start their initial involvement including possible contracts for design and engineering work.
Appraisal - Appraisal is the stage where the MDB staff fine tunes the projecfter loan documents are executed. At this point the MDB continues its oversight and encourages the competitiveness of international bidding by the prime contractors.
Evaluation - Evaluation is the final stage for the MDB and is a review of the project and has some impact on the direction of determining future projects.

Participation in MDB Financed Developments

To participate in a MDB project, keep track of the MDB publications, relevant private sector publications, and maintain contact with DOC facilities and liaisons. You can also locate bidding agencies in targeted markets since it is the local entity that provides bid details. Get involved as soon as possible, no later than the time the MDB loan is authorized.

Previously, typical MDB-financed projects were for large infrastructure development. This has now shifted to those more concerned with technology, health, communications, and the environment. A current estimate is that MDBs are funding nearly forty-five billion dollars to 150 developing countries around the world, a substantial market.

U.S. Agency for International Development

The U.S. Agency for International Development (AID) administers a program of economic assistance programs that combine assistance to foreign countries with definite needs and at the same time, promotes U. S. national interests. These include promoting open and democratic societies and the improvement of lifestyles and health standards.

Most AID activities are centered around AID missions which identify specific areas of need which is then reported to the Mission Director, then Ambassador, and eventually the Secretary of State. Firms interested in working with AID should obtain The Guide for Doing Business With AID from the government printing office. This give a detailed description of their programs and procedures.

Opportunities exist for commodity sales, contracts for project consulting services, and a variety of products. As with MDB programs, AID projects are either financed or under oversight by the agencies and the actual contracting is done by the foreign country or agency.

Other Agencies and Programs

Trade and Development Agency

The Trade and Development Agency (TDA) is a new agency and it is the only one providing feasibility study grants for overseas projects. These grants are made to the foreign country with the condition that the contracts given out be with U. S. companies. Often the projects investigated for feasibility by this agency can turn out to be quite substantial, such as communication networks and airports.

To track TDA activities, look for Requests for Proposals in Commerce Business Daily or subscribe to TDA Bi-weekly or TDA Early Bird by calling (703) 875-7447.

United Nations

The many subgroups and advisory groups within the United Nations are of themselves a large customer. Some of the more prominent are the United Nations International Children's fund (UNICEF), UN Educational, Scientific, and Cultural Organization (UNESCO), the World Health Organization (WHO), and many more. You should obtain the General Business Guide to the United Nations if you are interested in pursuing this avenue.

Defense Security Assistance Agency

Additional opportunities are available for defense and military oriented exporters which are under the Defense Security Assistance Agency (DSAA) if US funds are utilized. This agency's procedure can be found in Department of Defense publications Security Assistance Management Manual (DOD 5105.38M) and The FMS Financial Management Manual (DOD 7290.3M) available from DISAM, Building 125, Area B, Wright Patterson Air Force Base, Ohio, 45443.

Traveling To Overseas Markets

Careful planning and preparation will maximize the effectiveness of your overseas trip, minimize your expenses and make efficient use of your time. Travel plans should take into consideration the normal work days and business hours in the country to be visited and be scheduled around foreign holidays, international vacation schedules, and religious holidays. Obtain World Commercial Holidays, published yearly in Business America, from your DOC office for more detailed information.

Keep free time in your schedule to allow for unplanned meetings and unexpected circumstances. Use extra time for research, planning, telephone contacts, or summaries of prior meetings. Take time to shop the competitive market, gain insight to business opportunities, and orient yourself to economic realities.

Travel Documents and Medical Preparation

Travel Documents

Obtaining a valid United States passport is your first priority. It is required for all travel outside the United States and Canada. To obtain a passport, citizenship is required along with proof of identity, two identical passport photos, a completed application form and fees.

U.S. citizens who travel to a country where a valid passport is not required will need documentary evidence of their U.S. citizenship and identity. Proof of U.S. citizenship includes an expired passport, a certified (original) birth certificate, Certificate of Naturalization, Certificate of Citizenship, or Report of Birth Abroad of a Citizen of the United States.

Many countries require a visa. A visa is an endorsement or stamp placed by officials of a foreign country on a U.S. passport that allows the bearer to visit that foreign country. Plan on two to three months in advance for processing of your application, photographs, and visa. Apply for a tourist or multiple entry visa. It is more easily obtained than a business visa which is unnecessary unless you plan to physically sell, transfer goods, or earn money. Securing a visa from some countries can be a difficult task. Some countries require an invitation from the business contact in that country.

An international drivers license is a separate document and does not replace the need for a valid U.S. driver's license. More information can be obtained from the Office of Passport Services in Washington, D.C. (202-647-0518)

For more information on entry requirements by country, check the U.S. Department of State,1995 Foreign Entry Requirements - "Tips for Travelers" series. Released by the Bureau of Consular Affairs, March,1995.

Medical Preparation

Check with health care providers and your records to ensure immunizations (e.g. tetanus and polio) are up-to-date. Preventive actions are the best protection against most health risks involved in traveling abroad, especially in developing countries. The most common risk is for traveler's diarrhea, which can be treated with either antibiotics prescribed by your physician, Pepto-Bismol liquid, or Imodium AD.

Some countries may require International Certificates of Vaccination against yellow fever. A cholera immunization may be required if you are traveling from an infected area. Vaccinations against Hepatitis A, polio and meningitis are also available. Investigate the need for immunizations or other preventive medicine against regional diseases you may encounter. Some of these treatments must be started weeks before you begin your trip. No immunizations are required to return to the United States, but requirements for vaccinations differ from country to country.

Some medical problems can be prevented before departure. Check with the U.S. Public Health Center (404-332-4559) for facts related to health conditions in the country you will be traveling to. Detailed health information is included in Health Information for International Travel, available from the U.S. Government Printing Office.

Follow these traveler help tips, so you stay as healthy as possible on your trip:

Adopt sound eating habits. For example, don't eat uncooked foods, do peel your own fruit, and make sure all food is steaming hot when served to you.
Rest before you go, but also plan a few days of rest and relaxation during your travels.
Take extra quantities of any prescription medications with you. Be prepared for uncontrolled events, pack one lot separately along with a duplicate perscription.
Bring your own brand of aspirin, anti-diarrheal, and antacids.
Keep emergency telephone numbers and telephone tokens at all times. These numbers might include U.S. Embassy, foreign distributor's home phone, police, travel agent, or your medical insurance identification and phone number.
Plan a course of action for your family to take in case of an emergency while you are traveling and always keep your family informed of any changes in your itinerary.
Be aware of business, social, and cultural patterns to assure your compliance with the accepted customs of the country your are visiting.
Bring a first aid kit which includes band aids, gauze, scissors, tweezers, tape and a topical ointment for minor abrasions.
Bring Sunscreen with a SPF of at least 15. In addition, use insect repellents containing at least 30% DEET where mosquitos are present.
Pack a decongestant for colds and sinus congestion, along with aspirin and/or ibuprofen. Motion sickness can be helped with Dramamine tablets.
Pack an extra pair of sunglasses and prescription glasses or contacts.

Having proper documentation and staying healthy are important as you make your trip overseas, but it won't do any good if you don't know anything about customs and traditions in the country to which you are traveling.

Cultural Factors

Understanding and respecting cultural, social, and business customs will prepare you for the flexibility needed to adapt to profitable international business ethics and practices. Lack of cultural awareness can be detrimental to the success of a company's position in the foreign market. Wells (Exporting from Start To Finance, 1995) suggests a quick, in-flight review of theCulture Grams, developed by Brigham State University's Center for International Trade. Over 100 countries and their special cultural considerations are identified in separate leaflets. Bookstores and libraries are also an excellent resource for historical and cultural information.

Read the following for additional tips on international customs within your target market.

Target Market Distinctions

The Checklist For Your Overseas Trip (50k PDF) includes specific marketing data that should be considered for your overseas visit. Determine the cultural differences of each market when evaluating information incorporated in the checklist documents. Proper knowledge of business manners and methods for your target market will insulate and protect the transmission of your company goals, objectives and business agendas.

Use foreign country marketing plans to compare social customs within potential markets before engaging in business conversations. Pay close attention to business styles, cross-cultural communication, and the degree of importance a foreign distributor places on developing business relations.

The potential of your foreign market can be maximized by using marketing resources to obtain a better understanding of consumer buying habits, business practices and management cultures.

Cultural Business Variables

Cultural sensitivity is critical to the success of your international travel. Let your host set the tone of your initial meeting. Pay close attention attitudes towards gift-giving, accepted form of greeting, business relationships, small talk and smoking. Misunderstanding these customs may embarrass both you and your host. If there is a language barrier, be sincere, but let the product speak for itself.

International business executives often carry confusing titles. When meeting your prospective customer or distributor, be careful interpreting the correct use of business titles, surnames, and first names. There is often a distinction between formal occasions, business meetings, and written communications.

Cultural Negotiating

There are additional characteristics and approaches to consider when negotiating international business deals. Wells (Exporting from Start To Finance , 1995) confirms the availability of the many principles, details and nuances you can use. The best strategy is to study what you can, when you can, with attention to logical priorities based on the importance of the deal and the immediacy of the need (Wells, Exporting from Start To Finance , 1995). Even though you may never perfect your cultural style for each foreign market, major offenses can and should be avoided.

Before you make your overseas trip, certain negotiating tactics, business fundamentals and issues should have been discussed with your company. Know these basic issues and how far you can deviate from the agreed upon concepts. Be aware of the least amount you can agree upon as well as concessions you can make during negotiations. Don't lose sight of the ultimate goal, make a deal that is best for you, your company, and the distributor.

Travel Tips

Change money at the airport of entry, it is usually better than the rate at your hotel or from an inner city bank.
Plan ahead for a translator or hotel operator to help make telephone contact to confirm or schedule appointments.
Try and skip taxis as your method of transportation from the airport. Arrange for hotel/airport transportation in advance. Taxi rates are usually higher and operators can be intimidating.
Select business, deluxe or first class hotels that offer business services for patrons. These services can include communication systems, translators, and general business information that relates to your target market.
Try to travel with others when possible.
Make a list of all the documents you are carrying in case of loss or theft. Have all the applicable numbers ready for replacement purposes. For instance, photocopies of your itinerary, reservations, passport, medical and eyeglass prescriptions, airline tickets, traveler's checks, and credit cards are recommended.
Proper clothing, sunscreen, and insect repellent is very important, not only for comfort, but to avoid more serious health hazards.

Your conduct during negotiation, overseas travel and even your choice of hotel characterize the image you portray for your company and product you are trying to sell.

Promoting the Product

In order to sell your product overseas, it is necessary to advertise. The advertising effort actually begins at home, as you make your first contacts with potential overseas representatives and introduce your company and product to target markets. In these early stages, you are beginning to establish your image This image is further refined by your negotiation and selection of your designated representative. Your conduct during negotiations and during foreign travel, even your choice of hotels, will characterize the image you are presenting.

There are two major considerations that must be addressed early in your selection of an advertising program. First, you must decide who will control the advertising campaign, you or your overseas representative. Second, you must evaluate and implement the most appropriate methods. Click on one of the following for further information.

Frequently, there will be no "black and white" result from your evaluations. The promotional effort is often a collaboration between the exporter, his representative, and an advertising agency. A variety of advertising methods may be utilized to reach different aspects of the selected market.

Campaign Control

The promotional campaign can be either centralized (under direct control of the exporter) or decentralized (under the control of the overseas representatives). Each method has its advantages and disadvantages.

Centralized promotional efforts:

Control of all promotional efforts, logos, advertising messages by the exporter.
Uniformity of the company image and advertising message to all markets.
Economies of scale in maintaining one headquarters operation, minimizing duplication of efforts.

Decentralized promotional efforts:

Each market is different and local experts may have the best understanding of it and the best methods to promote the product.
U.S. ad agencies may not be strong or experienced in some overseas markets.
There is more flexibility in the selection of local advertising agencies.
Local regulations, customs, and taboos are more clearly understood.

As a beginning exporter, you will probably use the decentralized approach because you will be starting in one or a limited number of markets and require local expertise.

As your markets expand or become more numerous, a more centralized approach with greater control and potential cost savings will become feasible. US advertising agencies can often affiliate with local firms to assure knowledge of the local market and effectiveness of the promotional effort. Larger US companies such as Coca-Cola, Kodak, and IBM prefer this approach which gives them maximum control.

No matter which means you select, close collaboration with your representative and constant communication is essential not only in determining the focus of your marketing effort, but also in monitoring and evaluating it.

Once you determine who has control over the advertising campaign, you'll need to decide on the appropriate means to promote your product.

Means of Advertising

A variety of methods and agencies are available to assist in your marketing effort, many of which you may be using in you domestic efforts. However, there are a number of methods that will help you advertise internationally. Some may be best utilized in a general sense, while other may be focused and specific to selected target markets.

The following list represents the major methods:

Direct Mail

The most time-tested and common method of advertising for smaller exporters is through a direct mail campaign. You may even be conducting your direct mail campaign ahead of, or as part of your effort to locate an overseas representative.

Leads for direct mail can come from foreign trade and technical journals, trade association publications, responses to advertisements, or subscriber lists. Subscriber lists are often available from the publications, list brokers, or from direct mail consultants. Trade shows and the contacts generated can also form a source of mailing lists.

A specific mailing list of screened prospects is prepared by the Department of Commerce through its Export Contact List Service. The DOC prepares mailing lists of prospective customers from its automated worldwide file of foreign firms. Information regarding the firms selected includes key contacts as well as addresses and telephone numbers.

Media Advertising

Media Advertising is broader in scope than other methods. Television, video, and radio are general in their scope but well adapted for consumer products. A more specific approach, particularly for commercial products, is available through print media oriented towards specific markets such as the following:

Trade Journals - Many foreign buyers find business through advertisements in trade journals. Obviously, this provides a screening function to narrow the focus of an advertising campaign.
Commercial News USA - This US&FCS publication and EBB promotes American products overseas by distributing it to consulates and embassies. CNUSA reaches up to 110,000 potential buyers.
Buyer Alert - A weekly newsletter mailed by the Foreign Agriculture Service to promote food and agricultural products.
Trade Association Newsletters and Publications - Not only can US trade association publications be used to promote your product, but also their foreign counterparts.

Whenever media advertising is used, make an effort to have it translated effectively in the local language, if possible. Screen it for conformance with the foreign country's customs, regulations, and note taboos or idiosyncrasies.

Trade Fairs, Trade Missions, and Catalog Exhibitions

There are several levels of international events and organized trips held both in the U.S. and abroad. These are frequently organized by state and U.S. government agencies, as well as trade associations and Chambers of Commerce. Some of the more prominent programs are:

Industry-organized Domestic Fairs and Exhibitions - Most major industries in this country have their own organization, many of which arrange regular exhibits of their member's products and services. Many attract potential buyers from around the world.
Trade Shows and Trade Missions - Organized by the DOC, Chambers of Commerce, or trade associations, trade shows are an excellent opportunity to showcase your company and products as well as make valuable contacts.
Matchmaker Events - Often oriented to new-to-export firms, matchmaker events attempt to more closely align the exporter to prospective contacts and markets.
Catalog Exhibitions - Catalog and Video/Catalog exhibitions are a relatively low cost method to advertise your product abroad.
Other DOC programs - The DOC has a number of other programs, including those of the Export Development Office, Major Projects program and Textile and Apparel Export Expansion program. Contact your local DOC office for further details.
Department of Agriculture Programs - The USDA also has a variety of programs to promote your exports including its Commodity and Marketing programs, High Value Product Services Division, and AgExport Connections.
AgExport - connections provide trade leads, buyer lists, and publishes a weekly newsletter called "Buyer Alert" which advertises US products.

Careful planning and follow through are necessary when using methods requiring overseas travel due to the expense. The right event must be selected, materials and translators prepared and adequate follow-up assured.

Multilateral Development Banks

A number of firms have entered foreign markets by bidding on or subcontracting to bidders of Multilateral Development Bank projects. This has as its advantage a large degree of exposure while offering opportunities for immediate business. There are five main Multilateral Development Banks and their activity level has increased significantly in recent years.

Depending on your marketing objectives and stage of your promotional effort, you may be utilizing several or all of these avenues, particularly as market penetration increases.

Researching Your Markets

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The Whats, Whys and Hows of Market Research

This section covers the importance of market research and explains how it can help you succeed with exporting your product or service. Different types of market research that you may want to conduct are identified, along with detailed information on how to conduct the research. Read the following for more information.

Why is Market Research Important?

Businesses that invest time researching audiences for their products increase their chances of succeeding in the international marketplace. Researching potential markets can help you:

identify where your product is most likely to sell
specify market segments
determine both domestic and international competitors; and
establish a fair market price for your product.

Conducting a systematic market search takes time, but normally pays off in the long run. Considering many of the factors involved with exporting in the beginning will save you from misfortunes in the end.

How Should You Conduct Market Research?

The two types of market research most businesses conduct are primary and secondary market research.

Primary Market Research

In conducting this type of market research, businesses collect data directly from the foreign marketplace initiating phone interviews, employing surveys, and directly contacting potential customers and representatives. Because it is tailored to a specific company and product, primary market research is time consuming and expensive. As a result, most small businesses begin researching their markets using secondary market research techniques.

Secondary Market Research

In conducting secondary market research, businesses collect data from a number of resources including:

International news reports (televised, in print, and on-line)
Trade and economic statistics (in print, and online)
Trade agencies

Generally, exporters use all of these resources in combination starting with the first two, and conclude by confirming (and gathering additional) information from Trade Managers and Export Specialists at the given agencies.

Classifying the Product

Begin conducting market research by classifying your product to gather relevant trade statistics. This section covers information that will help you understand how product classification systems relate to market research. Additionally, the most helpful classification systems are explained along with details on where you can find codes for your product, and what you will want to do with them to progress with your research.

Why Must You Classify Your Product?

Most U.S. and foreign entities categorize exported (and imported) products to collect meaningful data for economic analyses. Products are first categorized broadly into groups, and then broken down into detailed classifications. There are many different classification systems. We will cover the four most common.

Knowing which classification codes represent your product can help you track where similar products are being shipped, quantities shipped, and the revenue generated off the shipments. Knowing your codes can also help you gather other relevant demographic and economic information about potential markets.

What Classification System Should You Use to Classify Your Product?

There are many types of classification systems, differing from one another in format and purpose. These are the four classification systems you need to know about to effective conduct market research:

What do you do with the classification results?

After you classify your product and ascertain the necessary codes, you will be ready to gather the trade statistics on your product. Many resources and reports exist that will help you gather market data.

Statistical Trade Resources

TradePort contains original research materials and other relevant public domain information. Access resources identifying state origin of exports, data on exports by commodity and by port, and U.S. foreign trade highlights from 1994.
The U.S. Commercial Service website provides a database search for industry information, which can be cross-referenced by region, country, date, and report type.
Bureau of Census reports on compact disk obtained for a price through Trade Data Services at 301/457-2242.
FT900 U.S. Merchandise Trade by SITC and SIC Codes. Read this source for monthly/annual general trade analyses by commodity groups and selected countries, available for a price through Trade Data Services.
EM545 U.S. Exports of Domestic and Foreign Merchandise subscription available through Trade Data Services. Information found within this source come in the form of a computer-generated report based on Schedule B commodity codes. Use this source to track specific situations.
Small Business Administration's (SBA) Automated Trade Locator Assistance System (SBAtlas), available for free through the SBA. This report ranks by product and country the top 35 markets (both import and export) for a specific product or service. This source is available through your SBA district office or Small Business Development Center (SBDC). Call 800/UASK-SBA for more information.
National Trade Data Bank electronic subscription service (on-line and in compact disk format). This resource is a repository of data from many federal agencies, allowing access to over 100,000 documents, magazines and databases. Additionally, NTDB subscribers also have access to the Bureau of Census export and import statistics by commodity and countries based on the ten-digit HS codes. For information on NTDB, check their home page at National Trade Data Bank, or call the all-purpose Trade Information Services (TIC) at 800/872-8723 (800-USA-TRADE). Remember that TradePort provides many of the documents in the NTDB.
Trade Promotion Service Centers. Find experts versed in the ins and outs of trade within California.

What Other Aspects of Your Product Should Be Analyzed While Conducting Market Research?

As you conduct market research and classify your product, think about who your typical buyer will be. Think about who would benefit from using the product, and document the characteristics of the potential customer. Exporters with new products that are not yet classified may develop a customer profile to document the characteristics of a person or company that would buy their products. If this is the case, exporters may also want to gather trade statistics relating to the general group to which their product belongs.

Also, think about the quality of your product and the most appropriate price in any given country. To estimate a price, calculate the expense of manufacturing, storing and shipping the product, and consider increasing that number a percentage. However, your pricing structure may be affected by the economic climate of the given market, the exchange rate, and the purchasing power of your audience.

Identify Potential Markets

Using the classification codes from the last section, and referencing appropriate resources, you will be able to access specific trade statistics on your product. Many of the statistical resources mentioned will display information that may reveal:

Where a Product is Being Exported To
By looking at where a product is being exported to, you can identify markets into which like products are being sold. This information may indicate that an infrastructure (political, cultural, and economical) exists that will possibly support the sale of your product.
Where a Product is Being Imported From
By looking at where a product is being imported from, you can identify both domestic and international competitors by country and state. Markets with many competitors may be worth entering given that the standards or quality of your product and how you service it meet certain needs. However, too much competition as you begin to export may make it more difficult and expensive to penetrate a given market. Instead, look at entering smaller markets where few competitors have set up shop. If competitors are doing well and you foresee market growth potential, you may have an opportunity to start at the "ground" floor and grow with the market.
How Much Product (In Dollars and Quantities) is Being Shipped
By looking at how much of the product is being shipped in dollars and quantities, you can estimate the actual size of the marketplace. Later, you will need to consider the market population holistically (by country), and determine the gross national product (GNP) statistics for each. Think about how much of the population is buying the product (factoring in the quantities shipped and the revenue generated). Is a small sector of the population purchasing most of the product? Or is a large number of the population exercising their purchasing power?
Product's Trade History
By looking at a summary of the product's trade history over the last few years, you can estimate if the market is growing or shrinking consistently, or emerging. Look at shipments over the last three to five years. Think about which markets are growing consistently. Does the growth record indicate a trend? Identify markets that are shrinking. Is this reduction a result of a recession? Are there political or economical indicators that signal the potential for the market to emerge once the recession is over?

A vital part of identifying markets is researching countries of potential markets.

How does your product or service compare with competition in the foreign market?
Is your price competitive in the markets you're considering? Reflect on the monetary exchange rate, and current economic conditions in the markets you are pondering.
Who are your major customers? Exporters with unique products that have not been classified or sold previously will want to develop a customer profile to determine the most likely audience that will buy his or her products or services.

Identify Which Markets are Most Penetrable

The three largest markets for U.S. products and services are Canada, Japan and Mexico. However, these countries may not be appropriate markets for your product. As you research countries think about their political and economic situation as well as their culture and customs. After determining markets in which your product is selling well, and identifying your competitors, consider the following questions:

What Potential Market Trade Barriers exist?

All businesses that participate in the international marketplace are met with some type of barriers when they enter. Such barriers include:

Tarrifs or taxes imposed on imported goods that, when high, may make it difficult to sell your product profitably in a foreign market.
Non-tariff barriers, such as laws and regulations that countries enact that protect domestic industries against foreign competition. Non-tariff barriers include import quotas or restrictions on quality of imports.
International Standards promoted by the International Standards Organization (ISO) involves establishing quality manufacturing and service standards, and certification and monitoring world wide. Originally advocated by the European Union, around 100 nations are now considering adopting ISO processes, as seen in the IS0 9000 (a generic family of standards and quality control systems). Nations are currently debating the advantages (saving money) and disadvantages (cost to certify) of adopting international standards.
Communication may be a problem if you do not speak your potential customer's language. Luckily, the international business language is English, hence you should be able to find someone who can speak English if you or someone in your employ does not speak the targeted market's language. Eliminate this barrier by ensuring someone on your staff knows the language (and culture) of your customer which may help put him or her more at ease.
Distribution arrangements may present barriers if the market has not yet been explored by other U.S. businesses. Political and transportation infrastructures must be available for you to distribute your product or service most effectively. Connecting with a distributor or intermediary early in the process may help you identify if this barrier is of concern.

Does your product need to be modified?

Under certain conditions, product modifications are necessary to conform with foreign government regulations. Modifications may also be necessary due to geographic, climatic, cultural, and electrical standards of foreign markets. If adaptations were not considered previously, be sure to analyze this aspect now to confirm that modification costs do not exceed your projected profits (making the product too expensive and unprofitable to export).

Determine Markets to Research Further

Once you have identified potential markets, considered competition, and looked at the feasibility of market entry, you will want to further research and evaluate those markets. The next section will take you through evaluating your target markets, and present information that you will need to think about to successfully enter the international marketplace.

Before you go on, make a list of 5 - 10 potential markets to target. Choose 3 - 5 large markets, and 3 - 5 smaller markets covering the bases of opportunities for potential international sales. Keep in mind, you'll further narrow your scope as you define the best target market identified through your research.

Evaluating Your Target Markets

Now that you have accumulated a list of potential markets, its time to narrow down your scope and identify the best two to three markets for your product. A checklist (50k PDF) from John Jagoe's Export Sales and Marketing Manual is available to help you evaluate your target markets. This checklist serves as a reminder of the many aspects involved in exporting. Additionally, once you have researched all your markets, this checklist can be used to comparatively analyze the markets you are targeting and continuously narrow your scope.

Determine Characteristics and Risks Associated with Each Market

Identify characteristics and risks specific to the markets you are considering. These issues are covered in more detail below, and include:

Market Size
Market Growth
Market Accessibility
Economic Stability
Political Climate
Cultural Climate
Environmental Factors
Geographical Factors

Market Size

When examining market size, look at the overall population. Then, estimate the percent of potential buyers within that population. Look at the numbers that suggest how much the population spends on this type of import. While doing so, identify if there are domestic or international competitors already providing a similar product. If there are, what is the production rate of each? If possible, determine the price your competitors are charging, and compare your product's price and quality against theirs.

Entering smaller markets where few competitors have set up shop may give you the opportunity to start at the "ground" floor and grow with the market. However, if you enter smaller markets beware of the barriers you may encounter as a result (e.g., transportation and political infrastructure problems).

In researching demographics, look at the unemployment trends and educational levels of consumers in the target market. The more sophisticated the target market, the more difficult it may be to compete. Also identify the language and dialects spoken within a particular market and evaluate if you have the resources to communicate with customers in their language.

Market Growth

Examining the growth of the market over the last few years will tell you if it is consistently growing or shrinking. Look at the last three to five years of import history for your product (if available) within a given market. Also look at trends and growth forecasts. What do they tell you about the market and its potential for growth? Has it reached its peak? Is the market saturated with like products? Are the number of imports increasing or decreasing? If the numbers are increasing consistently, this indicates that the market is expanding. Seriously consider markets that are larger with strong growth potential to increase profit margins and reduce production costs.

Also consider the industrial development stage of your market. Those that are just beginning to industrialize may not have need for the latest technology. However, some markets developing industrially may take advantage of the progress made in more developed markets and leap ahead bypassing earlier innovations and adopting later technology to help build their infrastructure (e.g. the Middle East is considering fiber optics for telecommunications instead of copper wire due to its quality and price structure).

Market Accessibility

Many factors influence market accessibility. The following is not an exhaustive list, but it may help you assess how accessible the market is to you and how accessible your product is to your targeted customers:

Import duties and tariffs costs may make sending your goods (or services) into the foreign marketplace unprofitable. To determine the duty or tariff rate, contact a trade agent to help you identify the Harmonized Tariff section which corresponds to your product. Remember, each country has its own schedule of duty rates.
Local and foreign suppliers may influence your marketplace accessibility. Be sure you know who your international competitors are. Compare the price and quality of your product with the competition's.
Sales representatives located within the country to which you wish to export can represent your product and act as an intermediary. Representatives may be able to give you ideas of the best ways to access the market and customers through different channels of distribution.
Promotional practices, such as how you advertise and promote your product will affect how much of the targeted market will have access to (and know about) your product.

Economic Stability

Many factors affect economic stability of a marketplace (and country). Determine if the economic climate is thriving or diving? Recessing or growing? If possible, identify the GNP growth rate and per capita income. Also, ascertain the unemployment rate of the country. This will affect how much of the market can actually spend money to buy your product. Markets that are stable and growing are obviously more attractive to conduct business with.

Additionally, consider the availability of U.S. dollars in the target market. What is the exchange rate between the U.S. dollar and that of the country in which you will sell your product? Besides unequal access to the dollar, another factor that may keep your customers from purchasing your product may be a trade deficit, which could be important if customers are able to obtain import permits.

Lastly, note that foreign countries undergoing economic and industrial development may not collect and disseminate trade statistics. If they do, these statistics may be in a form that cannot be easily interpreted. When such important market information is missing or not understandable, consult a trade agent or eliminate the market.

Political Climate

Many questions must be asked regarding the political climate of a potential market. Such questions include:

On what type of political system is the country and market based? Is the system stable?
Will the governmental system affect your customer's ability to import?
Will the political system affect tariff rates and licensing requirements?
Is the legal system supportive of international trade?
Are there legal tariff and non-tariff barriers? And are there incentives of which you should be aware?
If the market is politically unstable, how might that affect economic stability?
What is the overriding attitude for doing business with companies in the United States?
Has the market or country adopted the International Standards Organization's ISO 9000 processes?

Cultural Climate

With over 300 countries in the world, many have their own language, customs and culture. Being educated on the culture and values of your target markets will increase your success in the international marketplace.

Although the international business language is English, it may not be that way for long. It is to your advantage to speak the native language of your customer and understand his or her culture in order to communicate more effectively. Make sure you utilize your staff resources to their fullest to accomplish this task.

Customs and culture also affect consumption of goods. Factors like colors, numbers, and communication fit this category. For example, when considering product or promotional gift colors, keep in mind that white is the color of death in China and Korea, whereas purple is seen in the same light in Spain. In the U.S. yellow implies cowardice, whereas it takes on religious and mystical undertones in India. Study the cultural differences of the target markets and of your own. You may be surprised how a product that is fully accepted by a U.S. market is negatively rejected by its foreign counterparts.

Environmental Factors

Environmental factors such as climate can influence modifications you must make to your product in order to sell it in a given market. Determine if humidity or other climate issues will affect the product performance or appearance as it is in transit or as it is used or consumed.

Geographic Factors

Geographic factors can also affect your success in a given foreign market. Such factors include, transportation to the country or market and legal restrictions on travel. To enter a foreign market, a transportation system must be in place (i.e., there must be a way for you to get to your foreign customers). Keep in mind the longer and more remote the distance is to the market, the more the transportation and travel costs will be.

Determine Necessary Product Modifications for Each Market

Considering characteristics and risks associated with each market, contemplate how your product must be modified to be sold successfully in each market. The costs of product adaptations add up quickly. Ponder what modifications are necessary and evaluate if the costs make the product unprofitable to export. Target those markets where minimal modifications are needed.

Identify Feasible Markets to Target

Having completed many of the steps of market research, analyze those markets that have the highest potential. As you research, you will find you have narrowed down your list from many potential markets to two or three markets most likely to purchase your product with minimal modification, and for an acceptable price.

Once you have evaluated and targeted your markets, visit them to confirm your research findings and begin to think about an export strategy. If possible, cluster potential markets and visit them all in one trip. You may want to think about representation and meet with a few distributors while you are there. Gather relevant data about traveling to your target market. Always keep in international information, and may provide you with information about a country or market that you have not considered.

If you used the provided checklist, take the list with you, along with your current export plan. Have the Trade Manager look it over and ask for suggestions and comments. If you are in California and need to find a Trade Manager, go to the Trade Promotion Service Centers page.

Getting Started

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Assessing Export Readiness

Assessing your readiness is the first place to start in examining if exporting is a viable option for your company, and product or service. Assessing your export readiness helps you to make effective decisions based on logical, systematic thinking.

To assess your export readiness, answer the following questions, based on the Department of Commerce's Export Qualifier Program. Then, read the case study to find how one company assessed their readiness.

There are many motivational and organizational factors involved in determining a company's export readiness. Consider these factors before answering the questions:

Is Your Company Ready to Export?
Is Your Product Ready to Export?

Is Your Company Ready to Export?

Motivational Factors

These are normally the motivational reasons companies decide to engage in exporting. You may find that one or more may match your company's motivational reasons for exporting.

Contribute to general long-term expansion
If your objectives are to expand your business over the long-term (and you not necessarily looking for immediate returns today), exporting may be for you. Successful exporting is built upon plans that are well laid, and that take time to develop and execute. Building an international sales and marketing program involves taking time to identify market opportunities, develop working relationships with overseas partners, and engage in profitable transactions that are in alignment with the overall goals of your company.
Enhance competitiveness
Generally, participating in the international marketplace provides opportunities for companies to improve their overall competitiveness. By selling internationally, a company can gain insights on customer requirements, competitor activity, and different ways of doing business (management know-how). Additionally, by competing internationally, companies may acquire new technologies, and new ideas for products, as well as partnerships.
Exploit unique technology and expertise
Entering the exporting arena because of a technological advantage your product or company possesses may help lead to success within the international marketplace. Superiority in product quality and expertise can give a company an edge over competitors who may not possess such advantages. For those without (and with) a technological edge, consider the other advantages your company may choose to offer that may include product packaging, after-sale servicing, delivery and of course, competitive pricing.
Improve return on investment
If your reason for exporting is to see immediate return on investment, then exporting may not be for you. Generally, succeeding at exporting requires long-term goals and objectives, where as short-term gains and profitability will not be an immediate reality. Exporting programs that are most likely to succeed are those that are well thought out, plan for the long term, conduct market research, build international relationships, and arrange the sale and delivery of international shipments. Companies should seek multiple benefits from exporting, such as expanded customer networks, exposure to new ideas and technology, and ideas for global sourcing.

These are normally the motivational factors involved in a company's decision to engage in international trade. As you now know, the financial gain of international trade is over the long term. If you're looking for short-term gain, exporting may not be for you.

Organizational Factors

These are normally the organizational factors that influence a company's decision to export. Which scenario(s) best match your company's reasons?

Management Commitment
Experts agree, that commitment from management is the number one determining factor of export success. Management shows their commitment to an international sales program by setting aside funding to support the program, alloting time to manage the program, and assigning personnel to carry out the program's transactions. Participation from management early and often in the export development process can facilitate market entry and expansion.
Management must be willing to sacrifice near-term profits for long-term sales. Reluctance to do so during the period of establishing international customer relationships may hinder export success and market penetration. Help set management's expectation of the results of doing business internationally; identify the level and rate of return on investment expected from the program. Be realistic; international sales plans involve long-term objectives, and not short-term payoffs.
Funding Support
Management must be willing to allocate sufficient funds and create an adequate budget for export activities. Business who want to break into exporting will need funds for working capital, product modification, medium term credits to overseas customers, and operations such as staffing, communications, and travel budgets. When companies are constrained by their inability to allocate or raise funds for such needs, they will encounter difficulties. If internal funds are not available, think about securing funds through commercial banks, the Small Business Administration, and other financial service providers who can help you meet your long-term objectives.
Personal Expertise and Commitment
Having in-house staff with international experience can facilitate your entry into the international marketplace. If you do not have such a person, you can either hire one or train present staff to assume the responsibilities. This person will need to be aware of rules and regulations regarding exporting your class of product.
Besides knowing about export rules and regulations, it would help your company if your employees were also knowledgeable of your target market's language and culture. Though English is accepted as the language of business, having the ability to communicate in a customer's native language will give you an advantage over your competitors.
Production Capabilities
Selling a product internationally (as well as domestically) requires the capacity to produce or manufacture the product. Does your company possess the space and equipment needed to manufacture for the specific countries you are selling to (who have their own product standards and regulations)? What minimum order quantity will you require of your customers? If you are already selling domestically, do you have the production capacity to handle and store additional orders? Expanding into the international marketplace will result in a higher number of units to manufacture. Ask yourself if this increase in production will affect quality of output?
Company's Exporting Goals
Increasing profits and growth are the main reasons to export. However, your company must be aware that exporting pays off when you take a long-term approach in developing an export plan, building international relationships and organizing export functions internally. Boosting competitiveness, extending product life, and balancing revenue deviations occurring in domestic markets are other goals your company may have for exporting. Whatever the goal, consider if the expected benefits outweigh the costs. If costs do outweigh benefits, perhaps your company should focus on domestic business instead, or look at exporting at another time, when it is a more viable option.

On an organizational level, you need not only need the management commitment to sacrifice short-term profits for long-term sales, but also the capacity to manufacture and store a greater number of units.

Is Your Product Ready to Export?

My Product is Already a Success in Domestic Markets
Research shows products that enjoy or have enjoyed a healthy market response in the U.S. may do just as well in other countries, given similar conditions and markets. If you feel this applies to you, the next step is to identify why it sells or has sold so well here. Keep in mind that if conditions abroad are significantly different (socially, culturally, economically, politically and environmentally), the success of exporting your product might meet obstacles. Investigate these issues while conducting your market research.
My Product Has Not Been Sold Domestically, Focus is on International Sales
Beginning to sell your product in the international marketplace might be a good decision, even if the product does not have a selling record at home. If you decide to focus solely on exporting your product, take time to consider social, cultural, economic, political and environmental characteristics your target market possesses. Plan on investigating these factors more in depth during your market research.

Once you've considered the target market, you need to consider the product itself. Do you actually have an exportable product? Answering these questions objectively will help you determine if the actual product is ready for export.

Does Your Product Require Modifications?
You may sell your product without modifications to international markets, as long as it meets standards and regulations set by the respective countries. Some countries have strict governmental regulations that require special testing, safety, quality and technical conformity measures. Others impose tariffs and taxes on certain product classifications, while still others enforce non-tariff barriers, such as certification, inspections and quota limitations. Consider the costs of adapting and modifying your product for international sales, and ensure that the benefits of exporting outweigh the costs.
Does Your Product Require Extensive Training to Operate or Use?
Products that require training to operate place a greater responsibility on your company and distributor or agent, for you must decide how to support it. If users of your product do not require extensive training, the exportability of your product is stronger.
Does Your Product Require Considerable Support After the Sale?
Products that require considerable support after the sale must be handled by a distributor or agent who is well positioned to provide such a service. After-sales support may include maintenance, parts inventory, training and warranty. Maintenance issues may involve technical assistance costs, whereas parts inventory may involve additional storage and shipping costs. As for training, consider the additional costs of travel, and solid design and delivery techniques.
Is Your Product Versatile Enough to Fulfill Different Needs?
A product that has multiple applications has great potential in the international marketplace. In exploring your product potential in a new market, remember that a flexible product can appeal to a number of diverse audiences.
Is Your Product Unique or Differentiated?
Products that have unique features enjoy a competitive advantage and better reception in foreign markets. Such unique features include patents, superior quality, cutting edge technology, or adaptability. If your product has competition in a foreign market, it may be difficult to sell. With this in mind, you may want to ensure your product has significant advantages over its competitors by looking at its unique features, suitability, and enhanced after-sales service. If a product is new and unique, check if any low-cost market research exists to help assess market potential. See your local Trade Promotion Service Center for detailed information.
Does Your Product Require a Special U.S. License to Export?
Many classifications of products require special approval from the Department of Commerce before you export. Some of these products require export licenses (such as high tech goods).

If you were able to satisfactorily factor in product considerations for foreign trade, chances are you could viably export your product.

A Case Study: Silicon Valley Computers

Ever since Silicon Valley Computers' Vice President read about the demand for computer parts in overseas markets, she has enthusiastically supported the idea of exporting. A marketing manager with extensive international sales experience is heading up an international sales division, and the finance manager has set up a very generous budget for international trade activities. Once the sales start rolling in, the production department will hire a third shift to keep up with the extra orders.

Silicon Valley Computers (SVC) has identified their very successful motherboard line as the product they wish to export. Although motherboards are quite common in the targeted region (Southeast Asia) SVC's motherboards are unique in that they have won the coveted Best Motherboard Award from the Computer Parts Association of America. SVC has begun to research possible product modification issues, and has the support from production management to alter the product if it will increase its competitive advantage.

Is SVC, as a company, ready to export? Let's assess the company's readiness and the product's readiness. First we'll examine the motivational and organizational factors inside the company.

Motivational Factors

SVC has identified many motivational factors that influence their export readiness. These include:

The purpose of exporting is to contribute to company's general long-term expansion
The process of readying itself for export may enhance company competitiveness
SVC has a unique product that has been recognized by a prestigious association

Organizational Factors

SVC has also addressed many organizational factors that affect their readiness to export. To review, SVC has:

Commitment from top management including the president, marketing manager, finance manager, and production manager
A funding plan developed by the finance manager and signed off by CFO
Experienced personnel ready to handle the international sales program

SVC determined their product would sell successfully because:

Product is already a success in the domestic market
Product is unique and differentiated
Potential product modifications are needed, and may be feasible
Due to complex nature of product, it may require after-sales support and a special U.S. license to export

We recognize that SVC's product and organization are ready to export. With this in mind, we recommend that SVC look further into target market research, the exporting process and develop an export plan. You'll learn more of these processees as you move through the tutorial.