Basic Guide to Exporting Goods and Services
During the time of our forefathers and ancestors, the very idea of a “global market” may have been too farfetched and even impossible. The world is such a vast place, and the idea of products one country being available for sale across the globe seems to be quite a difficult concept to grasp.
But times have changed; many things have happened since then, and we are now enjoying the conveniences and benefits of this global market. Two of the activities that made the global market a reality are importing and exporting.
Importing and exporting are actually the same; the difference is just in the point of view. Importing means the purchase of goods that are manufactured in a foreign market or country, for the purpose of selling in one’s domestic market. Exporting, on the other hand, involves the sale of domestically manufactured goods to a foreign market or country. In this relationship, there is an exporter and an importer. In this article, we will be focusing on one side of that relationship: Exporting.
We will discuss 1) the importance of exporting in our global economy, 2) factors that affect exporting, 3) things to consider before exporting goods or services, and 4) how to export the right way.
IMPORTANCE OF EXPORTING
Each country has something unique to offer, and they see these offerings as opportunities to expand their economies. By bringing their offerings, such as products, resources and skills, to the global market by way of exporting, they are able to bring money into their coffers and grow their economies.
That is the main reason why countries are actively jumping into the exporting bandwagon. They look at the resources that are lacking or scarce in a specific foreign market, and that they have an abundance of, and sell those resources to them. In return, they get paid a commensurate amount for these resources. It is a win-win situation.
Say, for example, that country A is rich with brilliant and innovative minds when it comes to developing infrastructure and technology. However, they do not have the natural resources to be used in infrastructure development. This is where country B, who is rich in these natural resources, comes in. Country B will sell its natural resources to Country A, effectively making Country B as the exporter and Country A as the importer.
The advantages of exporting include:
- Increased economic growth for the exporting country. Exporting is basically an economic transfer. The sale of the products or resources of one country (exporter) to another (importer) increase the exporter’s national gross output, regardless of whether the sale is for cash or in exchange for other products, services or resources.
- Increased domestic economic activity. As the country engages more actively in exporting, it taps into its domestic manufacturers and suppliers for the products or resources that will be sold on the global market. This means more business for domestic entrepreneurs and businessmen.
- Increased profitability. Of course, as a business, you want to grow and so you want to earn more profits. By selling internationally, you may have higher costs, but you will also have higher sales since you are now selling to a bigger market.
- Stronger diplomacy and foreign policy between and among nations. Governments will benefit from relationships established through exporting, since they will be coming into closer contact with other countries or economies. In short, what started out as a relationship involving purely trade can result to other, deeper and more meaningful relationships that will be beneficial to everyone involved.
- More opportunities for businesses of all sizes. Exporting is not limited to large corporations and multinational companies. Even medium-sized and small business can also export their goods and services; according to the U.S. Department of Commerce, International Trade Administration, small and medium-sized businesses export to at least one international market. The figures used as basis were gathered in 2005, so you can just imagine how the numbers have increased more than a decade later.
- New markets mean more options for companies. You are no longer going to rely solely on a single market because you can venture out of your own shores for equally green, or even greener pastures. This is particularly tempting for businesses that are facing high competition domestically, or those that are simply not doing too well in their own markets or countries. They can instead bring their products or services to other markets or countries where they are more likely to be accepted and bought. Similarly, businesses that are in countries with volatile economies, faced with inconsistent rises and drops and irregular fluctuations, can tap into other markets.
- Prolonged sales life of products and services. Existing products and services will have a longer sales life since there are other, newer, markets for them to be sold in. Products that are no longer in season in one country, for example, may still be “in season” in another.
- Increase quality of products and services. As businesses enter other markets even outside of their own countries, competition becomes tougher and tighter. Domestic businesses will be forced to keep their guards up and improve their own offerings if they hope to be able to compete with other businesses entering their territory. Exporters will also make sure to keep the quality of their products high in order to penetrate a new market and be able to compete with domestic businesses.
FACTORS THAT AFFECT EXPORTING
Exporting is a general concept, but applicability is not general. If it were, then you will find that all countries have thrived and flourished thanks to exporting. You will notice that some countries still haven’t been able to benefit from exporting, and that can be attributed to several factors.
Export regulations, laws and policies
This is seen by many as the largest stumbling block for anyone who wants to export. Not only do they have to comply with regulations within their own markets or countries, they also have to make sure that they are also not in violation of the existing applicable laws and regulations in the market they will be exporting their products to.
Other than laws, there are also trade agreements in place that have to be observed by exporters and importers alike.
Interested in digging really deep into foreign trade and WTO? Read this awesome resource.
Distance is also a factor to be considered although, lately, this has been relegated as a minor concern. The growth of global markets have certainly made even the longest distance short.
Language and cultural barriers
Businesses have to be in constant communication with each other, and barriers to smoothly communicating are bound to cramp their style. Some of the most common problems that must be overcome include language barriers and differences in culture and social norms.
Exporters should make it a point to study more than a little of their target market’s culture in order to tailor their marketing and selling plan accordingly. Learn more about Hofstede’s cultural dimensions.
This is on the part of the companies that plan to export their products. One of their most common mistakes is to think that, if it works in the United States, then it will work anywhere in the world. Overcome this notion and you will be able to look beneath the surface, recognizing that you have to make necessary adjustments.
Currency is all too often subject to fluctuations, so these may also impact how exporting is done. Exporters are basically faced with currency risks when they sell their products to other markets. What they can only do is to strategically time their selling periods so as to minimize currency losses.
THINGS TO CONSIDER BEFORE EXPORTING
If you are planning on going into exporting soon, you have to first ascertain whether you are export-ready or not. There are a few considerations that you should first take note of when evaluating your “export potential”.
Your Expectations and Objectives
You have to be clear on the reasons why you want to export. Do you want higher profits? Do you want to set up your business for future expansion in the global market? Knowing what you expect and what you are aiming for by exporting will make it easier for you to take the necessary steps toward making it happen.
Product and Production
You must first take a good, long look at your product, or what you are going to offer. Product viability is a very important consideration that must not be overlooked.
- Export potential. Does it have export potential? If you are your buyer, would you purchase that product? More importantly, if you are a foreign buyer, would you purchase that product, which is obviously from another country?
- Exportable. Is your product free from any encumbrances brought about by export controls and regulations? Is it “exportable” according to domestic laws in your market?
- Modifications needed. Will you have to implement modifications in your production processes to meet requirements or expectations of the foreign market you will be selling your product to?
- Transportable. Is the product transportable to the target foreign market? What are the other implications of this, particularly on pricing?
Let’s get down to it: does your company have the money to bring your product to another country? Can you afford to enter another market and face domestic (and other foreign) competition?
For sure, it is going to cost you money. Look at the available capital and, if that is insufficient, the lines of credit and other possible sources of capital available to you.
Evaluate your HR requirements in bringing your business operations to other markets, and whether you have the available manpower to meet them. Are your people qualified and skilled to handle the exporting side of things? Do you have enough people in place to focus on exporting, without compromising your domestic operations?
Export Requirements and Compliance
These are mostly the legal considerations that you should first evaluate. Do you meet all the requirements, or will you be in violation of any of them?
HOW TO EXPORT GOODS AND SERVICES
Step #1 Develop an Export Strategy
It is now time for you to create your Export Plan, where you will map out your export strategy. Your starting point can be the business plan that you are already using for your domestic operations. From there, you can come up with the Export Plan, which is basically a business plan that puts emphasis on international or global markets.
Elements of the Export Plan
- Introduction or Overview of the Business. Here, you will provide a background of the business, always with a view to exporting. You are basically going to discuss the purpose of the plan and what you hope to achieve in going into exporting, whether they are short-term or long-term goals.
- Organizational Structure. This is an internal look, summarizing issues such as ownership of the business and its management and staffing. You have to make a clear division between exporting and the other existing operations of the business to see how it fits in the grand scheme of things. This is also where you list down the human resource requirements and the available human resources that you have for your exporting venture. This section may also tackle issues on labor and the labor market, as well as alliances or partnerships that the business can benefit from when it finally enters exporting.
- Offerings of the Business. Now it is time to include a detailed discussion on the products and/or services that you plan to sell in other markets. Describe their features and specifications and the benefits or value that they will bring to the end users in the foreign markets. You should also include a description of the production process. In the instances where some modifications and innovations on the products or services have to be implemented in order to meet the unique requirements of the market you will be exporting to, see to it that these are discussed fully. If you are looking far ahead and have products or services in the pipeline, for manufacture and sale in the future, you may also include them in the discussion.
- Market Study. Just like in a regular business plan, a study of the market should also be included. This time, you will be taking a look at the foreign market that you plan to penetrate: its political, economic and socio-cultural environments, the potential market segments, and the existing players in the industry. This means you also have to take a look at the existing competitive landscape and identify the competitors that you will be up against.
- Entry Strategy. It’s time to map out how you plan to enter the market that you have so extensively discussed in your market study. Again, consider the fact that not all foreign markets are the same. They have unique characteristics that call for unique approaches when it comes to market entry. Aside from the competition, you have to consider your marketing strategy: your product positioning and differentiation, your pricing strategy, your distribution strategy, and your promotions or advertising.
- Regulations and Logistics. You can never get away from regulatory and logistical issues, that’s why you have to include them in the export plan. Foreign countries have their own sets of regulations and modes of transportation – some of them may have been unheard of where your business originally operates – so you have to take them into careful consideration. Are there export permits and documentation that you have to obtain? Talk about them, and include them in your implementation plan later on.
- Risk Factors. Every time a business enters a new market, there are bound to be risks involved. Come to think of it, going into business is a risk in itself. Some of the biggest risk factors faced by potential exporters are market risks, currency risks, credit risks, and political risks. Identify every possible risk that your business may encounter, so you can create a plan on how to mitigate them.
- Implementation Plan. List down the key activities, in chronological order, that you will perform in order to implement your export plan. Of course, you have to check and monitor your progress, so you should also include the evaluation criteria and the process to be followed.
- Financial Plan. You have to quantify everything in dollar amounts. Create a budget that you will adhere to when implementing your plan. This will come in handy later on when evaluating the results of your exporting operations.
- Export Marketing Plan. This is similar to a regular marketing plan, but with focus on your export activities, specifically targeting the customers in the foreign market you will be exporting to.
Step #2 Clear All Documentary Requirements
Comply with the applicable laws and regulations and secure the permits, certifications and other documents that will allow you to start exporting your products or services.
Read the godfather resource on export documentation which clarifies everything you need to do.
Step #3 Prepare Product for Export
As mentioned earlier, you may have to modify your production processes and make adjustments to your product in order for it to be acceptable in your target foreign market.
Step #4 Deliver your Product
In delivering products, points to consider include:
- Methods of shipping or transport (or delivery of services). This will mostly depend on factors such as distance, terrain and level of demand for the product.
- Role of third parties, such as customs brokers and freight forwarders.
- Packaging of the products and subsequent packing, ready for transport.
- Completeness and appropriateness of all export documentation, such as shipping documents and collection documents
Exporting is a very broad topic; what we touched on are just the basics. For many, it may seem like a complicated process, and it is to a certain extent. However, through study and careful implementation, any business can become an exporter. Small businesses have been doing it for years now, there is no reason why you couldn’t do the same.