Many American manufacturers would not even consider entering the international arena. The conventional wisdom is “why take chances when there is so much business potential on our own shores?”
 

This is unfortunate because it hurts the manufacturer and it hurts our country.

The Main Benefits of International Business

1. Benefits to the Manufacturer:

a)      Global sales smooth out the bumps of seasonal and economic peaks and valleys. With the exception of the 08/09 economic meltdown, recessions generally do not occur simultaneously all over the globe, and summer in the northern hemisphere is winter in the southern.

b)      Enhanced prestige through a worldwide reputation increases domestic sales.

c)      New exports represent incremental sales.

2. Benefits to our Country:

a)      Every manufacturer who exports contributes towards tilting our balance of payments in our favor. We have consistently imported much more than we exported, thereby allowing our dollars to leave the country.

b)      Every manufacturer who exports contributes towards enhancing the reputation of American products worldwide, creating critical mass by creating more demand for American products.

Frequently Asked Questions

1. How do we get paid?

That depends on how aggressive you want to be in soliciting exports and your tolerance of risk. It is customary to ask for payment in U.S. dollars so that the risk of currency fluctuation rests with the buyer. Open account payment generally occurs via international wire transfer. Your bank will charge a fee of approx. $15-$25 per payment (negotiable!) International payment terms run the gamut from Prepayment to Open Account with extended terms. For the faint of heart there are some in-between options. Here they are with their associated risks, benefits and costs:

a)      Prepayment – this can be an option under certain circumstances, such as a first order from a distributor or a one-time order from an end user. It can also work if the manufacturer has a unique product that is not available anywhere else, or it is recommended if the buying country has just experienced an economic melt-down. This certainly is the safest and least expensive option, but is not competitive in soliciting business.

b)      Partial Prepayment – such as a 50% deposit to cover the manufacturer’s costs, and the balance on terms. Can be considered at the beginning of a business relationship, but only if the buyer has provided satisfactory open account references.

c)      Letter of Credit (L/C) – the preferred payment method for sizeable transactions. It is very safe, but expensive for both parties. There are bank costs to the buyer for opening a letter of credit and bank costs to the seller for collection of the L/C. There are also numerous requirements that must be met before the L/C can be paid. Banks are extremely fussy on the details because they are the escrow party in the transaction. The manufacturer must carefully check all conditions of the L/C and determine whether they can all be met before production begins. If not, amendments should be requested before the L/C is accepted. Any amendments to cure discrepancies after shipment become very costly to the seller and cause considerable delays in payment. Collection costs to the seller of $100-$200 are not unusual. Most L/C terms are “at sight”, i.e., payment is made when all shipping documents are presented to the bank, but term L/Cs can also be structured. Collection of an L/C can be handled by the manufacturer’s accounting department, or, for a modest fee, by the international freight forwarder.

d)      Cash against Documents – a much cheaper method and almost as safe. It is the international COD, with the freight forwarder as the go-between. The risk is that theoretically the buyer can refuse the goods on arrival, and the seller would have the shipping expense both ways. I have never seen that happen, but it is a theoretical risk. If the seller has another distributor in a neighboring country, something can possibly be worked out with extended payment terms so that the goods do not have to come back.

e)      Open Account – the best method for both parties, provided the buyer has excellent bank and payment references and trust exists between the parties. The absolute minimum payment term would be 30 days from invoice date, but 45 or 60 days are preferred by most buyers because of the delay to ship and clear through customs. Italy, France and Japan are infamous for wanting much longer payment terms.

2. What about Insurance?

The manufacturer should always quote “FOB factory” (also known as “ex works). Under those terms of sale the title to the goods passes to the buyer when the goods are picked up and the risk for transportation loss or damage rests with the buyer. Often the buyer has a rider on his policy to cover the risk. If he does not, it is important for the seller to request insurance coverage through the forwarder in his shipper’s letter of instructions. 

3. What is an International Quotation?

It is known as a proforma invoice. It looks like an invoice and gives the buyer everything he needs to place the order, open the L/C, etc. In addition to the quantity, description, unit price and extension it also states the currency, the terms of sale, the terms of payment and the expiration date for placement of the order.

4. Who picks the Forwarder?

Generally the buyer, because on “ex works” terms the buyer is responsible for all costs associated with transportation. If the buyer imports from other U.S. suppliers, he will have negotiated favorable rates with a certain forwarder. If the buyer does not have a preference, the seller should interview various companies and compare costs and services to assist the buyer, and also to build a good relationship with a forwarder. Forwarders are important partners and can handle a lot of aspects of the business for modest fees. They will also be happy to educate seller personnel on the ins and outs of exporting.

5. How do I find Buyers?

Often buyers find you. Importers from all over the world read U.S. industry and consumer publications. Responding to their inquiries is the easiest way to begin a relationship. You must do due diligence to investigate who they are, if they are the right partners, if they are financially sound and responsible (see available services below). Once someone looks promising, a personal visit is the best way to investigate prior to any commitments. Failing that, a limited-time agreement is a good way to test the waters. All overseas partners will look for some kind of exclusive.

There are also a number of services offered by the U.S. Department of Commerce at modest fees to help new exporters:

a)      World Traders Data Report – investigates and reports on potential partners.

b)      Catalog Shows – these are an inexpensive way to get the word out through targeted shows in targeted countries. All you send is your catalogs, and the Department supplies native speakers to talk about your product while handing out the literature. Leads are collected and forwarded to you.

c)      Full-fledged market research and partner search in targeted countries. The staff of the commercial attaché of the U.S. embassy in the target country investigates how your particular products are sold in that country, who the players are, how competitive your prices have to be, and introduces you to a number of potential partners.

6. What if things don’t work out?

Any distributorship agreement must include sales forecasts and timetables, and it is up to the export sales manager to administer and monitor those agreements. The forecasts and timetables are arrived at by mutual agreement, and can easily be cancelled according to the terms of the agreement.

It has been my experience that overseas partners will be much more diligent in meeting forecasts because they are investing so much more in bringing in a line from overseas. In addition to the samples and other sales materials, they will be required to pay all expenses for a trip to the factory for their product training. Also, all promotional expenses for the line come out of their pockets, such as print advertising and sales literature in their own language. Because of the time zone differences your overseas partner also has to invest a lot more time in training his personnel (they can’t just pick up the phone and call customer service when they are in a jam). As a result, I have found that the product knowledge of their personnel is generally vastly superior to that of domestic distributors.

7. What else do I need to know?

PATIENCE – FLEXIBILITY – COMMITMENT are the three watchwords for successful export business.

a)      Don’t expect overnight miracles. It takes time to develop export business. It will take each partner 12-18 months to develop anything really significant.

b)      Be flexible and prepared to discuss preferential pricing – volume discounts for stocked goods - extended payment terms – co-op advertising allowances etc., depending on market conditions in each country.

c)      Stay committed and network with fellow exporters through export industry associations.

Exporting is good business!

Why aren’t you in it?