Exporting Your Products and Services

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Exporting Your Products and Services

Provided by Andrew Reinke, President of Foreign Targets, Inc.

Q1. Why Export?

  • 96% of the world’s consumers live outside of the US.
  • Exports counter domestic economic downturns.
  • Firms that export are up to 40% more profitable than those that don’t.
  • More than 70% of the world’s purchasing power is outside of the US.
  • Approximately one third of the increase in the nation’s GDP comes from exports.

Sources:  Kiplinger Newsletter, WSJ, State of the Union 2010, 2011

Q2. Is the US Competitive Or Too High-Priced For The World Market?

US goods are manufactured in the most competitive environment on Earth. If you’re manufacturing in the US, selling in the US (especially with national reach), then chances are good you can export. US GDP for 2014 topped $17.7 trillion.  With a labor force of 156 million, the US makes more goods and services with fewer units of cost than any other nation, ranking the US as among the most if not the most competitive on Earth.

Source:  World Economic Forum, Geneva Switzerland.

Q3. Are American Exports Increasing Or Decreasing Over Time?

Increasing. Historically exports have never accounted for a larger percentage of the nation’s GDP than right now. In the 1950’s, exports accounted for roughly 4% of US GDP. Today, it accounts for about 14%, and economists expect the trend to continue.

Q4. Where Does Indiana Rank In Exports, What Do We Export And What Are Our Top Export Markets?

Indiana exports reached a record $35.5 Billion in 2014. The International Trade Administration offers a look into Indiana’s position in the global marketplace according to statistics compiled by the US International Trade Administration of the US Department of Commerce.

  • Indiana ranks 13th out of the 50 US states for exports based on value of exported products.

Indiana’s 5 Leading Exports in order of value, are:

  • Transportation Equipment
  • Chemicals
  • Machinery, Except Electrical
  • Miscellaneous Manufactured Products
  • Computer & Electronic Products

Indiana’s 5 Top Export Destinations:

  • Canada
  • Mexico
  • Japan
  • Germany
  • China

Q5.  Are we and our product ready for exporting?

Complete the Export Readiness Assessment Questionnaire to address how prepared and committed the company remains to devote resources toward developing an export agenda.

Export Readiness Assessment

Q6.  What research do we need to perform to determine if we can and should export, and where do we get that information?

Conduct Export Market Research. With the advent of the world wide web and assuming your company’s presence on the internet, a firm may receive unsolicited requests for quote and even orders.  However, both primary and secondary research should be conducted in order to accurately assess a product’s chances for export success long term, to identify the most applicable foreign markets, market trends and foreign business practices as well as competitive positioning.

  • Primary Research: Market data derived specifically from interviewing the targeted foreign customers as well as the sales and distribution channels in your targeted export markets.  Often more time and cost intensive, this ultimately is the best form of data gathering to determine product competitive positioning in the targeted markets.    Good primary research sources include:
    • Existing foreign leads, customers, contacts, inquiring foreign distributors and sales representative agencies.
    • Benchmarking – contacting other manufacturers of similar but non-competing products to learn of other successful export strategies that may have relevance to your export program.

This effort can lead to a wealth of information and contacts in your select foreign markets.

Secondary Research: Market data derived from trade statistics offered by various industry and government sources including trade unions, industry associations, state and federal industry and country specialists.  This data is relatively inexpensive although may often be outdated and too broad-based and not as product or market specific more commonly associated with primary research.

The following is a list of resources that should be considered when conducting secondary research:

  • US Department of Commerce Market Research Library – an excellent country and product data source of information, the US Foreign Commercial Service (USFCS) of the US Department of Commerce has country and industry analysts in the US and throughout the world based in our consulates and embassies that study products and industries, comprising market reports for the benefit of US firms intending to export.
  • US Department of Agriculture Market Research Library  – similar to the USFCS, the Agriculture Department has offices and resources in the US and abroad that research market and country data on behalf of inquiring US firms.
  • Industry Trade Organizations – It is advisable to contact all trade organizations to which the manufacturer belongs in search of any foreign market data or contacts that may be made available.
  • Chambers of Commerce, Sister City relationships, local universities all comprise a list of valuable resources
  • USA Trade Online – An excellent source of trade data (import and export) based on the HS and Schedule B code systems.
  • 1st identify your product’s Schedule B Code – http://www.census.gov/foreign-trade/schedules/b/
  • Determine through trade statistics if the US has a trade surplus or deficit with that product, and determine if the trends are positive or negative. http://www.usatradeonline.gov/
  • Determine with those same trade statistics to what export markets your product is shipped.
  • Determine how price competitive your product is in those select foreign markets against locally provided similar goods. Effort to involve determining freight and finance costs and any applicable duties and taxes.

Q7.  How do we find a reputable foreign sales representative or distributor?

After selecting which markets to enter, identifying the right foreign partner is a crucial part to successful export development. Identifying the right size distributor or sales representative capable of covering the foreign market that is financially sound, has a history of selling within your target industry and does not carry a competing line, are all crucial questions in assessing the best-fit for a foreign distribution partner.  Click on the link to download a typical questionnaire

Q8.  What are typical ways to export? 

Direct Export: A company engages in dialogue, quotations and sales directly with foreign buyers, distributors and sales representatives established in the foreign markets.  Advantages of this style of export is that it allows for greater control by the company along with internal knowledge of their export customer base.   Disadvantages include a greater portion of in-house export market knowledge is required, including added in-house staff time spent to maintain foreign market penetration.

Indirect Export: A firm may decide to utilize the services of an intermediary company based in the US.  There are two types of intermediary companies, Export Management Company (EMT), and Export Trading Company (EMT).

  • Export Management Company (EMC) is a firm that researches, establishes and maintains your export market while serving as an intermediary and sells for you, but does not take title of goods in the export process.
  • Export Trading Company (ETC) performs the same functions as an EMT, but takes title to the goods in the export process. While this often removes the riskiness commonly associated with exporting as US laws would apply, it the manufacturer is unlikely to know anything about the foreign buyer or even to what country the product is exported.

Q9. Are agricultural products exported from the US, and if so where do you turn for market research and general export assistance?

Breadbasket to the world, the US remains the most efficient producer of food. US agricultural exports, like our manufactured goods, are in high demand worldwide.  Accordingly, the US Department of Agriculture has an extensive website to help US agricultural producers determine if they are ready for export, and further by providing market research information and contacts.  To get started, please visit the USDA’s webpage directed at the foreign market:    US Department of Agriculture Market Research Library .

Q10.  What are free trade agreements and with which countries does the US have Free Trade Agreements, and which are pending approval?

Free trade agreements are bilateral and multilateral trade agreements between the US and other nations which serve to lessen or remove tariff and non-tariff barriers to entry, furthering economic ties and economic development among the signatory nations. In addition to those listed below, the US is currently negotiating with the European Union (Transatlantic Trade and Investment Partnership (TTIP) and with 11 Pacific Rim nations including Japan for free trade.  Movement on these latter two initiatives is anticipated in 2015.

Implemented free trade agreements for the United States:

 

  1. Australia – Entered into effect January 1, 2005.
  1. Bahrain – Entered into effect January 11, 2006
  1. CAFTA-DR – The US signed the agreement on August 5, 2004. By 2009, the treaty comes into effect with all 7 nations of the US, the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.
  1. Chile – Entered into effect on January 1, 2004.
  1. Israel – Entered into effect January 19, 1985, this was the US’ first free trade agreement.
  1. Jordan – Entered into effect on December 17, 2001.
  1. Morocco – Entered into effect January 1, 2006
  1. NAFTA – North American Free Trade Agreement – passed in 1994. Canada, Mexico, USA
  1. Singapore – Entered into effect January 1, 2004
  1. Oman – Entered into effect January 1, 2009
  1. Peru – was signed April 12, 2006
  1. South Korea – Entered into effect March 15, 2012
  1. Colombia – Entered into effect May 15, 2012
  1. Panama – Entered into effect October 31, 2012

Q11.  What are Incoterms?

Incoterms are the set of 11 internationally recognized and accepted terms of sale issued by the International Chamber of Commerce (ICC) involving control of goods and financial responsibilities of the seller and buyer, including cargo insurance and freight. All Proformas (see Q 12) should be written using these incoterms so there is no ambiguity as to what is being offered or quoted.   The current 2010 version came into effect on January 1, 2011, but any set of Incoterms (2010, 2000 and prior versions) may be used if both parties to the sales contract agree. Also include your HS Code on the proforma so customer can accurately assess duties, tariffs and taxes.

Q12.  What is a Proforma Invoice?

A proforma invoice is similar to a quote in which the price of goods and terms of sale are put forth, usually involving the use of Incoterms. The version of incoterms used should be identified in the proforma (Incoterms 2010, Incoterms 2000, or earlier versions).   Always put the HS or Schedule B number on the proforma invoice so the importer can accurately assess applicable duties and taxes by the importing nation’s government.

Q13.  Do we need to speak foreign languages and quote in foreign currencies?

Although helpful to learn some key phrases or words of your customer’s country, increasingly English is the dominate and accepted language of international commerce. Too, the US dollar represents over 80% of the currency of use for foreign transactions between nations, even contracts not involving a US company.  Far more US currency exists outside the US than inside its borders.  Should quoting in a foreign currency be necessary, contact your bank or the ISBDC Export Advisor for information on how best to hedge currency fluctuation.

Q14.  What are Schedule B and Harmonized System (HS) codes and what is the difference?

The Harmonzed System (HS) Classification is an internationally recognized, 6-digit numerical method of classifying goods accepted by nation members of the WTO (World Trade Organization). The HS number is used to assess duties and taxes by importing nations.  Additional digits are commonly used by various governments to further classify the goods.

The Schedule B classification is a 10 digit code comprised of the 6 digit HS code plus 4 more digits added by the US government to further define the product to assess duties, taxes and monitor exports.

Q15.  How do I find our Schedule B Number?

Visit http://www.census.gov/foreign-trade/schedules/b/ to find your product by word-search.

Q16.   What other local and state resources exist to help us develop our export market potential?

World Trade Clubs offer programs and seminars specifically geared toward educating the businesses and those interested on trade opportunities, international market trends, new laws, export financing and any factor that impacts an export or trade transaction. An excellent source of contacts, those in Indiana are:

  • Global Indy Initiative – In 2013, the World Trade Club of Indiana merged with the Indianapolis Chamber of Commerce. Indianapolis and Central Indiana
  • Northwest Indiana World Trade Council – as of Jan ’15, no website yet as this is a newly revamped trade council. For more information, call Dennis Hodges (219) 793-3370.
  • Tri-State World Trade Network – Evansville and Southwest Indiana
  • Federal and State Resources:
    • US Department of Commerce Indiana Office – The US Commercial Service of the US Department of Commerce is a federal agency dedicated to helping small and medium sized companies with export sales and marketing. Many services are available including trade data, industry and country specialists in the US and throughout the world, wherever the US has a consulate, embassy or other recognized federal office.
    • Indiana District Export Council – a private, nonprofit corporation comprised of dozens of experienced professionals throughout the state of Indiana, appointed by the Secretary of the US Department of Commerce, offering export expertise free of charge.
    • State of Indiana Foreign Offices – The Indiana Economic Development Corporation (IEDC) has 7 foreign offices located in Australia, China, Europe, Japan, Taiwan and the United Kingdom.
    • Other Regional and State-Wide Trade and International Organizations:
    • America China Society of Indiana is a non-profit organization founded in 2011 promoting trade and cultural ties between China and Indiana.
    • Indiana Council on World Affairs is a non-profit organization founded in 1955 to foster public understanding of world conditions and US foreign policy through forums, lectures and conferences.
    • Japan America Society of Indiana is a non-profit, cultural and educational organization founded in 1988 promoting friendship between Japan and Indiana.

Foreign Targets, Inc. (FTI) is an export management company creating and managing proactive export programs for small and medium sized manufacturing firms. This is achieved by utilizing a proven methodology: FTI’s Core-8 Steps to Export Management

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