Importing and Exporting

There are three main reasons why import and export businesses are important.  First, Availability: Products can’t be produced where ever you want to produce them.  Due to climate conditions or because transportation costs of raw materials, it is impossible to make your product in your home country.  Second, Cachet: There are products that acquire a higher relevance if they are directly imported from another country.  These regional factors have an impact on price and on preferences and makes people want to buy them even if they can be produce locally.  Lastly,

Price: Due to labour costs and raw material costs, it is sometimes cheaper to produce and assemble products in foreign countries.  Aside from these factors, from a pure economic prospective, countries exchange products in which they have a comparative advantage, meaning that they trade goods and services that they are able to produce inexpensively in exchange of other products that will be more expensive to produce locally.

There are several types of Import and Export businesses. An Export Management Company (EMC): is a type of company will take care of all the export issues that a company that wants to export can face. The EMC will hire dealers, distributors and representatives; they will handle advertising, packaging; arrange shipping and even sometimes it will arrange financing. In some occasions, an EMC will take title of the good becoming its own distributor.

This type of company will specialize by product, region or both. They are paid by commission, salary or retainer plus commission; unless they take title for the product.  Export Trading Company (ETC): This type of company will focus on what foreign buyers want to spend their money on and finds what domestic business willing to export. These companies will work on a commission basis or taking title.  Import Export Merchant (IEM): He/she is and agent that is not specialized in any sector or products. He will purchase goods from domestic or foreign producers and he will package, distribute and sells the product on his own. By doing this he captures all the profits as well as bears all the risk.

There are different ways your product will get to the market. Either you can sell it directly or indirectly by using some sort o middle man. Here we show different types of middle man that can be part of your distribution channel: Manufacturer’s representative is a salesperson that specializes in a specific type of product or line of products. He usually provides additional services such as technical services and warehousing.  Wholesale distributor: company which buys products and sells them to a retailer or other agent for later distribution.  A Representative is a sales person that introduces your product to a wholesale or retail buyer and later leaves the sales to you. The difference between him and a manufacturer’s representative is that he does not specialize in a particular product or line of products.  A Retailer sits on the bottom of the distribution channel. He will deliver your products to the final consumer. If your product is not intended to reach a final consumer, but is an intermediate good, you won’t need to worry about the retailer as the manufacturer of the final good will be the end of the line.

As in any other business, it is very important to identify your target market. As starting an import/export business can be complicated, it is highly recommended that you start a business in which you have some experience. By doing this you will find things a lot easier as you are familiar with products and terms employed in that sector. Also, and no lease important, by following this procedure you might find that selling your products might be easier as you may already have contacts in that field. Later, and once you’ve already started, you can extend to other markets.

Finding a niche is very important because this is what is going to make you different from your competitor. As you may imagine, you might not be the first one selling a product of those characteristics. In order for your business to succeed you need to find a way to differentiate from your competitors.  By doing this, then you can decide which form of business you are going to set up according to the ones describes above.

In order to know if you are going to be able to succeed as a business, it is very important that you do a market research to know what, to whom, where and how your products are going to be sold. To be able to find this you will just have to ask yourself these simple questions: What product/service I’m going to sell? Who is going to be the final consumer of my product? From which countries I’m going to import or which countries I’m going to export to? What trade channels I’m going to use?

It is commonly known that in order to make money you need money. Start-up funds may range between $5000 to $25000.  The cheapest and easiest way of starting your business is doing everything at home.  If home pc, printer and a fax machine you can start running your business. This will make you save a lot of money as you forget about renting offices or hiring workers.  As your business runs and you make more money then you my start thinking about expanding.  Also, as you have just started and unless you start as a distributor, you won’t need big amounts of inventory and thus save money needed for storage.  Your major expenses will go to office material and to market research. In many cases, your money will only go to market research because you will already have the most important tool: a computer.

It is true that you can add all sort of goodies to your business but if you are starting your business cutting expenses on good furniture, fancy file cabinets and stuff like that will cut down your budget and will not allow you to focus on more important projects that will bring money to your business.

When engaged into international trade, you will normally act as an intermediary in the transactions. In order to determine the price of the product you must take into account not only the actual price of the product, but the price that you will charge for your own services. Although these are too different things that affect the price, when combined they have an important impact on your business because they can determine the competitiveness of your business in the market.

As the pricing structure has a great impact in the success of your business, you might seek for different ways of getting a profit out of your activities. Commissions and retains are two commonly methods used by import/export businesses. Choosing between on another depends on how you feel the product is going to be sold. If you think that the product is going to be easily sold, you may want to use the first method. If you think that selling the product is going to involve a lot of effort and market research, it will be wise to use the second method.

Another way of making a profit for your business is to purchase and sell the product, either in your country or abroad, and selling it at a higher price wherever you see you can make a profit out of it. In this case, you will use the manufacturers name but the money will be made directly from the sales of the product rather than by a commission.

Another factor that comes into consideration and that can make the product less competitive is transportation costs.

Commissions are a percentage increase based on the manufacturer’s cost of production. Generally they will be around a 10%. As already said before, working under a commission depends on how easily it’s to sell the product. Once you’ve established the commission for in the price, you will add other costs such as shipping, marketing or packaging. If your price is still competitive after you’ve add up all these additional costs, you may consider increasing your commission percentage.  Retainers are a flat tariff that you charge for your services. As we also mentioned before, this is a good method to use if you feel that selling a product is going to be tough. By doing this you will be able to transfer all the research costs to the manufacturer and thus guarantee fix income.  Determining the amount of your retainer you need to take into consideration the following variables, all of which are associated with the performance of your services:

Labour and Supplies: here you will include your salary that you get plus what you have to pay to your employee if you have any. In order to calculate labour costs you will have to estimate the amount of time that it will take you complete a task and then times it by the hourly rate of your salary and the salary of your employees. Material costs can be calculated as a percentage of labour. If you don’t have any past records, a 2 to 6% can be a good benchmark.  Overhead: it includes all indirect expenses that you incur to run your business. To calculate the overhead rate, you should add up all your expenses during a year and divide it by your total costs of labour and supplies.  Profit: after you have determined your labour, supplies and overhead expenses, you can apply a percentage profit factor to the combination of these costs. This will be the amount of money that you will after all costs are covered.

When it comes to taxation of the goods you are going to import and export it is important to contact the affected country’s taxation department to find out about the country’s tariff and import fees.  Taxation is widely dependent of location, the value of the goods, and the actual product that is being shipped.  Often, a broker can help make sense of the requirements of each country that is associated with the transaction and help alleviate the stress of fulfilling all the requirements.  In the United States sales and state taxes are often also associated with exporting or importing into the country.  If a small business decides to handle their own taxation requiremtns then they should look to governmental websites and offices for the necessary tax documents and requirements.  To begin, the business should look to the Schedule B for the number associated with their product.  Then, use the Schedule B number to determine the applicable taxes in a particular foreign country.  Valuable resources for determining the correct tax rates and duties include http://www.export.gov, the Trade Information Center at 1-800-USA-TRADE, or visit a nearby US Customs Office to gain critical information about the taxes associated with your product.

One major concern you must look for when you are starting an import and export company is if there are any licenses or regulations in the country you are looking to start working with. Some countries have no licenses or regulations, others only have it on certain items and some countries have many. Obviously, the ideal country to work with would have no regulations, but that’s not always the case. Also, the US has many restrictions on what you are allowed to export out and import in to the country. You must be aware of regulations on both sides before starting your business.

To find out if the country you would like to do business in has any regulations or licenses required, you can contact The Bureau of Industry and Security (BIS). Here you can find a manual of Export Administration Regulations (EARs). These regulations apply to certain products, whether it is technology based, a commodity or software and can vary greatly from country to country and product to product. The hardest countries to export to are the ones with embargoes set on them or that are marked by the United States as working with terrorists.

You can find the list of regulations and requirements set up by the BIS on-line along with a step by step process of how to apply for a license at http://www.access.gpo.gov/bis/ear/ear_data.html. Here they give you many helpful tips and hints on how to speed up your license request process. Their first suggestion is that you apply for a license as soon as you have an order, never wait. This is good advice due to all the delays that can come about with trying to receive a license. Another tip they give is to be sure your classification is correct and you know what kind of product you are selling. If you do not have the right classification, this can put many delays in the process or may prohibit you from even receiving a license. Other things that may prohibit you from receiving a license include who your end-user is and what the end-use of the product is. If your product is going to be used for terrorist activity or any other highly illegal things, you will not get a license. If the people you are selling to are engaging in proliferation projects, your license will be denied or revoked and you can be prosecuted in a court of law. Ignorance is not an excuse. That is why you must be very careful when dealing with people from other countries, because their laws may not be the same.

Once you have determined that your product is subject to the EAR regulations and is legal to pursue, then you must look at the ten general prohibitions that go along with the EAR requirements. First you must check the list of products that are required to have licenses by the EAR. This list is called the Commerce Control List. It can be found on the BIS website listed above. If your product is on this list, you must obtain a license before exporting. The second prohibition is if the product has been altered in the United States. If any US product has been added to the product, you need to contact the BIS and obtain a license. The third prohibition is that even if the product was made outside of the country, if an American company made it, you need to have a license to export it. The fourth prohibition is that you are not allowed to deal with people or products that have a denial order on them. The EAR publishes these in the Federal Register. If you do deal with people or products on this list then you are in violation of the EAR and can be prosecuted so be sure to check this list carefully. The fifth one is that American law cannot prohibit the end-use or end-user of the product. This can be determined by contacting a legal representative or lawyer to help you figure out if it fits this requirement. The sixth prohibition is that embargoed destinations are off limits. Usually countries are embargoed because they are accused of harboring terrorists. Examples of embargoed countries at the moment are Cuba, North Korea, Iran, Sudan, and Syria. The seventh one is the support of proliferation activities. These are terrorist activities that can be aided by the use of your product. The eighth prohibition is that in-transit shipments and items that are unloaded from vessels and aircrafts must have licenses. This means that anything that needs to be shipped there needs a license. This is a very broad prohibition and you should make sure that you comply with this. The ninth prohibition says that you are unable to obtain a license if you have violated any terms, conditions or orders of the EAR while exporting. Ignorance is no excuse. And the tenth and final prohibition states that you are going against the EAR if you continue with any activities after you have gained the knowledge that what you are doing is against EAR regulations. The process to obtain a license is very lengthy and there are many regulations to it that are different for every product. It is suggested that you start early and be very thorough when dealing with the application process. Anything that is left out and can later be in violation of the EAR regulations can be used against you and your company.

When you are thinking about how to begin your export activity one of the most important considerations is to check if the foreign countries have trade barriers, or if they have the type of barriers that we can sell our products in a domestic market or if is impossible to export to that county because their barriers are too difficult to penetrate. In this time, every day the percentage is getting smaller in the countries that have these kinds of barriers, but some trade barriers still exist possibly in third world or communist countries.

These barriers are generally defined by the government and appear as government laws, regulations that are exceptional for each country, policies, or other kind of practices that protect domestic products from foreign competition or artificially stimulated exports of particular domestics’ products using incentives for exporters such as taxation, subventions or simply with money. We focus in the first type of trade barriers, those that protect domestic products in front of foreign products.

The most common foreign trade barriers are imposed by the government from where you want to export. These measures and policies are ones that restrict, prevent, or impede the international exchange of goods and services. All of these restrictions exist because without barriers the domestic products cannot compete in front of the foreign companies and in the country’s policy is protectionist. Trade barriers affects our exports to another country because these measures impose costs on our exports that are not imposed on products produced into the country.  These include: Services barriers that regulate international data flow and foreign data processing, Lack of intellectual property protection, High import tariffs, restrictions about the quantity, import licensing, and customs barriers, Unnecessarily and thorough testing, labeling, and certification, Investment barriers, Subsidies to other countries except for our country, Anticompetitive practices with trade effects tolerated by foreign governments, Others (special restrictions for each product).  To ensure that our business will not have any problems with the foreign countries we should check the Foreign Trade Barriers which is an annual report that the Office of the United States Trade Representative puts out and concerning 45 countries. It describes the trade barriers that exist in each country. In this report, we can find the trade barriers of countries from South-America like Argentina, Brazil, or Bolivia; countries from Africa like Angola, or Cameroon; and from Asia, like China, Vietnam, or India. The report provides quantitative estimation of how these barriers affect exports of goods and services from the United States. But the Foreign Trade Barriers report also contains an inventory which facilities negotiations to reduce or eliminated these barriers, and contain a useful tool to know the laws from United States, with the goal of expanding and promoting exports around the world because this benefits all the nations, overcoat the export country, and every consumers of these countries.

When planning in export or import products to/from another country, it is very useful to contact your embassy or consulate in the country that you want to export.  Embassies are located in the capital of the country and consulates are located in different cities of that country.  Both institutions have departments that will help you establish a trade relation with their country. They often have lists of manufacturers, producers and different channels of distribution that you may use in order to trade with that country.  In many cases, they will advise you about the regulation that that country has and whom my you contact for further advice.

When importing, it is useful to contact another country’s consulate in your own country because you can also find some interesting information. Make sure you establish good relations with authorities of the other country because this will make your life a lot easier if a problem arises.  If you don’t know what products the other country would like to import, in the consulate you may also find lists of manufacturers and catalogues and take a look at the different opportunities that can appear if you engage in international trade.

These organizations are very useful when you start your export/import business. Here you will find all the information you want about export and import. They will give you lists of possible partners, legal and financial advice, arrange commercial encounters with foreign businesses and help you financially if you want to go to a commercial encounter in a foreign country.  They will provide you with contact information so that if any new product or firm registers to the chamber of trade, you are able to know about it and take advantage.  They are all public institutions so you won’t, generally, have to pay anything for their services and they will provide you with very valuable information.

Customs brokers are often used to alleviate the stress of dealing with different government authorities and their import/export requirements.  As a small business, it would be difficult to research and satisfy all the requirements of the government of the country you are choosing to export to.  Customs brokers deal with the trade requirements, procedures, and customs and tariff regulations of the countries you are exporting to.  Customs brokers also facilitate the communication between the importer/exporter and the government authorities because they are trained in the requirements and customs of that particular country.  Customs brokers are paid to ensure that all the necessary regulations are met and that the complex forms and requirements are filed and sent on time and to the correct location.  Customs brokers in the United States are licensed through the US Customs and Border Protection Agency, a division of the US Department of Homeland Security.  There is also the National Customs Brokers and Forwarders Association of America that can educate and make small businesses aware of the requirements and constantly changing import/export requirements.

Another benefit of a customs broker is that they are well versed on transportation options, types of carriers and the proper classifications and duties associate with the cargo you will be shipping internationally.

Customs brokers are traditionally employed by freight forwarders and shipping lines and customs broking firms.  It is important to research the company’s history to ensure that they are licensed through the government so your company is not at fault for not meeting the requirements for importing or exporting.

Other steps that we have to follow and maybe one of the most important: to de able to export in other countries is what use to send our products to these countries. This problem is different for each business that wants to export, because each product is different than all the others.  This step we must be vigilant because depending on the type of product and the countries where we want our product arrive we have to use one or another way, or maybe both, and each way has it’s own problems and risks.  If we don’t want to have more headaches or assume the risks of this procedure we can contract the services of a freight forwarder.  A freight forwarder is an agent that moves huge numbers of products overseas to other countries. They are licensed by the International Air Associations (IATA) and the Federal Maritime Commission to handle air and ocean freight. Freight forwarders are familiar with the export rules and regulations of the United States and of the foreign countries, the methods of shipping, and all the documents that one business needs to export its products.

We can summarize the most important actions or services that a freight forwarder can bring us, such as advising the exporting costs including his service’s cost, all port charges that we can have to pay in the different countries, costs of the special documentation that we may need in some countries where the international products have to pass some exams or show the government additional documentation, and all the insurance costs that we incur to ensure that we cover the possible damage to our products. Not just this information, but also to help us to prepare all the documentation necessary for the seller, the buyer or a paying bank; and the right way to send these documents to be sure that they arrive at the right person. Also a freight forwarder can help us to search and find the most appropriate mode of cargo, transport and how we have to pack and load our product in the truck, vessel or aircraft. This is really important because finding the right method to transport our product can reduce the total cost of shipping. Another service that freight forwarders bring us is that they can find and reserve the necessary space in any aircraft, train, and boat or truck because these professionals know the market, have a lot of contacts and can find a better price than a price that we could ever find.

Every small business can find a freight forwarder without problems, because you can contact a person that has their own business, check the local business telephone list and ask for some freight forwarder, or contact with the National Customs Brokers and Forwarders Association of America to provide you information on their members.  Specific solution does not exist that can cater every situation, but we have o follow some items or actions to be sure that shipping will not present any problems.  Maybe the most important is to insure that the product will arrive at its destination in perfect condition, just as it was given to your freight forwarders. To control this, it is important that exporters ensure that their products are packed correctly and that it arrives in good condition; that has been labeled correctly to ensure that your product show his property and arrive on time at the right place, that they are documented correctly by the requirements of both United States and foreign government, and that all your merchandise has insurance against damage, lost or delay. All of these steps are so hard to consider and is the principal reason because the exports contract the freight forwarders services.

Another thing you need to be aware of, as an exporting company is the ICC or International Chamber of Commerce Incoterms. Incoterms are terms that can be used to help you figure out the payment plans and shipment responsibilities when dealing with international business. Now that the world is going global, there are more regulations on international business. You need to be aware of the regulations that you face if something were to happen. The ICC is there to help make sure that everything runs smoothly and no one gets taken advantage of or that nothing illegal goes on. The ICC makes sure that no arbitration goes on and that no laws are broken. Also they help resolve disputes among different countries and different companies within those countries. The ICC also helps fight for open trade in countries that are not as willing to participate in it. Another thing they do is fight corruption and combat commercial crime.

It is a really good idea to understand the terms of the ICC and make sure that you stay in compliance with them because they can be a big help in any situation. They are great for a reference to tell you what to do when something unexpected happens. An example is that if you ship your product overseas and the end-user never comes to pick it up, does the end-user need to pay for shipping and the product still or not? If a situation like this takes place, the ICC has terms that can help you decide what to do.

Letters of Credit are the most common form of payment when trading internationally.  They are issued through a financial institution and are a form of payment when the transaction is conducted across borders.  The parties to a letter of credit are the beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client.

The purpose of a letter of credit is to minimize the risk associated with large, international transactions.  The bank ensures that the goods are delivered before the money is exchanged, therefore ensuring payment and reducing theft.  The letter of credit allows importers to reduce the risk of having to pay in advance for goods, then not receive them, or receive the incorrect order or product.  It also helps exporters to know they will receive payment provided that the goods are shipped on time and match the product description.  The letter of credit allows overlap to ensure that the product received is consistent with the product that was ordered.

Another way to get more actively involved with the process of exporting is to participate in Trade Missions. By participating in these, you can find ways to increase the value of your product.  It is a great place to learn about new trade markets. When you attend these missions, you will also meet many influential government officials and you can get more information with them and get a better understanding of the trading economy. It is a great way to meet people that can help you set up your company and give you pointers from personal experience. It is a great way to learn from other people’s mistakes and not do the same thing they have done. There is a list of events on the internet that can tell you where the events are and how to get involved. The website is http://www.trade.gov/doctm/tmcal.html and here you can get the information you need to contact the International Trade Administration if you have any further interest in the trade economy. This is a great resource if you ever have any problems or have any interest in furthering your knowledge of the company.

Like all the people know, internet is a very useful tool for everyone that wants to build his own small business.  With this tool everyone has the possibility to access more beneficial information free of charge, or for less money than the price you must pay for the services of one professional. To construct your own business you can check the Internet to find information about laws, rules, legal regulations and another kinds of information that you need for your business.  You can find information from a governmental institutions and associations like this web site: http://www.export.gov/, but you can also find info from pages no-officials that also have very useful info to your business.

Maybe the principal difference between the official or governmental information and the no-official web-sites that: both have the same information about procedures and rules but in the no-officials webs you can find examples, some advice and both official and no-official have links(one example the web that the most part of information are links http://www.exportzone.com/ or http://www.usaexportimport.com/ ) to find more information about others webs, whether are official or no-official, where you can find your local Export Assistance Center and other official’s sites to find exactly what information you need. The official webs usually don’t have links of the no-official webs.

In the same way that you can find information about how you can you start your own small business and all the requirements that you need, all the documents that you have to fill out and the rules and regulations that you have to follow, you can find these same items of the exporting activity. In internet can find web-sites that offer you little guidance to start exporting and provide advice about what or what not to do, and why and how you have to do it.  But these guides have one problem and that is that you can generalize, maybe not all the procedures, but the most important part of the official steps associated with regulations, taxes, documents and all of these kinds of thinks that you have to follow to create your business, but you can’t generalize the personal procedures. Maybe sometimes the advice can create more problems because your may follow this advice without thinking that each business has their own needs. They probably specify this problem but you can forget this idea and follow it without thinking.  All the pages follow ones structure to explain the best method or the right procedures to follow for the exporters to resolve the exporting headache, but all these procedures are different, similar but different, and this can create confusion before beginning the export’s activity, read and evaluate more than one. The most beneficial procedures are to first check many web-sites for the best information and from there filter the information down to the most least useful.

It is important to know that all the web-sites not give you the same information, and more one less with the same prices, because the possibility exists web-sites to buy on-line books and guides for an amount of money, but maybe they don’t offer information for free like http://www.exportinstitute.com/ or this information is worse than the other websites.

The Internet is a big world and has a lot of information, structured in different ways. In the case of the export of products, you can find, if you are lucky and if you make a depth search you even can find pages that give information specifically about your segment of export. In the of the food business there is just one website (http://www.foodexportusa.org/) where they can find information and help just for this particular type of business.

In short, the internet is a good and useful tool to find information that can be beneficial to try is we want to start to export or not, and how can we do it. Is useful to find official procedures, requirements, regulations, etc, but may be no is the perfect tool to manager or take this decision, export or not export, without contact with a professional. Is the perfect tool to imagine and have a right idea that what we have to do and the problems that we can find around this decision.

 

Works Cited

“Export” 27 Oct 2008 <http://www.export.gov/>.

“How to Start an Import Export Business.” Entrepreneur.com. 28 Oct 2008 <http://www.entrepreneur.com/startingabusiness/businessideas/startupkits/article41846.html&gt;.

“How to Start an Import Export Business.” Home Business Center, Inc.  28 Oct 2008. <http://www.homebusinesscenter.com/how_to_start/importexport.html#a&gt;.

“Letter of Credit.” Wikipedia.com. 01 Nov 2008. <http://en.wikipedia.org/wiki/Letter_of_credit&gt;.

 

 

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