The Pros & Cons of International Business
Should you market your products internationally?
Are you looking for a way to expand your business? Have you considered marketing your products beyond national borders? There are many opportunities for growth that can be achieved by exporting products, services or intellectual property.
One of the first things you should do is evaluate your goals, risks, potential gain, cost and commitment to exporting your products and/or services internationally. While some companies may find entering the international market as easy as processing an international order through the Internet, others may need to build factories overseas in order to find international success. Regardless of how you enter the international market, you should do so only after researching and understanding the ramifications of international trade. This article addresses some of the basic points of consideration.
Identify Your Goals
Goals for building an export program will vary for different companies and different product lines within a company. While the goal for one product may be to expand sales, another product may have come to the end of its market life domestically, but would be viable for an emerging market in another country. Some companies may wish to sell their products in countries where they source from as a way to offset currency risk. Understanding your goals will enable you to evaluate the risk and cost you are willing to accept as part of your international program.
While there are many risks associated with international trade, the most common issues are about intellectual property rights (IPR). While IPR issues may also arise domestically, the mechanisms for protection often stop at country borders. Patent and copyright protections are specific to each country with the laws, rules and remedies varying accordingly. Consider the ramification of IPR theft on your existing business. Would sale or use of your IPR in another country hurt you? Is your product unique enough or difficult enough to reproduce to inherently protect you? You can help protect yourself from illegal fakes coming into the U.S. by registering your products with U.S. Customs at www.stopfakes.gov.
Another common risk is currency fluctuation. Currency fluctuations can cause difficulty while processing a transaction. If you are selling a product or service that will be paid immediately upon securing a contract, the risk associated with fluctuation is minimal. However, if you conduct business that has a time-lag prior to payment, a fluctuation in the exchange rate could cause deals to go sour.
While currency fluctuation can be a problem during a transaction, it can also open or close markets to you by changing your competitiveness. For example, today the U.S. dollar is relatively weak when compared to many major foreign currencies. This change may have made your product competitive in an area where you were previously struggling. When conducting a competitive analysis, remember that exchange rates can fluctuate dramatically, thus changing your competitive position.
Is your product suitable for the international market? The answer may vary for different countries and will encompass many aspects of the product. The design, application, market price and name should all be considered. If the product is electrical, you must find out if it is compatible with the target country’s electric supply. Will bolt patterns or pipe connections fit standards in your target market? What about the market drivers? Many water treatment product sales are driven by regulations, as well as enforcement of those regulations. Some target countries may have regulations which would seem to create a market for your products, but if there is no enforcement, success may elude you. Find out how the regulations compare to your domestic market. For example, a wastewater disinfection system designed to meet typical U.S. regulations will be over-designed for many plants in China, and under-designed for some of the plants in Australia. Is the product design suitable? Can your product be easily adapted to meet various market needs? Will the changes be cost-effective?
Product and company names also may be an issue. Translations do not always flatter a product or company name. Local customs and slang may cause a name to be inappropriate for some markets. It is always advisable to ask a native speaker from each target country to review and comment on trade names, slogans and advertising materials.
Most products can be exported from the U.S. without an export license. However, weapons, chemicals and items deemed to be in conflict with foreign policy may be regulated or banned from export. Check www.bis.doc.gov/licensing/facts1.htm if you are not sure about your product’s status.
In addition to the product regulations, the U.S. government also maintains a Denied Persons List, which is list of people and entities that U.S. citizens and companies are prohibited from doing business with. This list can be viewed at www.bis.doc.gov/dpl/Default.shtm.
Tariffs and duties are another regulatory consideration. Overseas customers will evaluate your price based on landed costs. In some countries, the tariff may be excessive, rendering your product uncompetitive. Check carefully how your product will be classified under the Harmonized Tariff Schedule, and what the rate of duty will be. Fortunately, many water treatment and other environmental goods are relatively low in tariff and duty charges. Keep updated on Free Trade Agreements (FTAs), as they can help open markets that may have been blocked by tariffs in the past. The U.S. currently has FTAs with several countries and is part of an ongoing negotiation called the Free Trade Initiative, which will eliminate duty on a number of environmental goods with many countries.
There are many ways to move products between countries. The most important consideration is accurate paperwork, particularly if your payment is secured by a Letter of Credit. One of the best ways to eliminate frustration is to utilize a good freight forwarder who fully understands the nature of your products.
Payments can be secured in several ways for international trade. The most appropriate method will depend on the nature and size of each transaction. For smaller and frequent transactions, credit cards may be a viable option for you. Ask your merchant account provider to check their policies regarding international credit card acceptance, protection and fees. Before you rely on this as your preferred method of payment, check to see how many people in your target country have access to credit cards. While credit cards are widely accepted in some countries, they are not commonly available to the general public in many countries.
My personal preference for international payment is Telegraphic Transfer prior to shipment. Many banks that are active in international trade are on the SWIFT network, which enables funds to be deposited directly to your account in seconds, without waiting for checks to clear.
For larger transactions, many companies will request a Letter of Credit (LC). While this is a very good tool for securing payment, I often get nervous when companies tell me how much they rely on this form of payment as being absolutely secure. The fact is that there are many ways an LC can become invalid, thus rendering your payment unsecured. When using an LC it is important to work with a bank and freight forwarder experienced in these types of transactions. Another source of payment protection is the EXIM Bank (www.exim.gov). EXIM offers credit insurance to secure payment and support trade in many countries.
Who Can Help?
The U.S. government offers a lot of information and support on exporting. There are export assistance offices located throughout the U.S. and overseas, which are ready to assist U.S. firms in securing overseas business. Visit www.export.gov for more information. Additionally, many states have their own export assistance offices. wqp