Small Business Guide to Exporting(Page 1) - Basics of Import-Export - FOB Business Forum [A Professional Business Forum]

2006-6-11 10:09 vip

Small Business Guide to Exporting

[color=Blue]This article is published by U.S Small Business Administration , help small business to export. It also can help non-US companies on business beginning.[/color]
OO;} P O:On
Breaking Into the Trade Game: A Small Business Guide to Exporting a;X]S2luJp'N

This publication is the product of a private/public sector initiativen,F&~O]lG
between the U.S. Small Business Administration and AT&T.  SBA's{&JT8d/v3N+q[
participation in this co-sponsorship activity does not constitute an&elHx/nn@
expressed or implied endorsement of the co-sponsors' or participants'
opinions, products or services (SBA Authorization Code #93-13-4924710-1).
For more information on SBA's programs, call 1-800-8-ASK-SBA.XW0j M~_

Co-sponsored by the U.S. SMALL BUSINESS ADMINISTRATION AND AT&T./k7_#H)@'Wc` C-G
?s+K|"JX`
Breaking Into The Trade Game:  A Small Business Guide to Exporting was
produced under the guidance of G. A. Chiaruttini, Deputy Director, Office
of International Trade, U.S. Small Business Administration.  SpecialG'N8} ta4{.D
recognition is given to the Editorial Staff of Colleen Allen, Catherine`0x)Hv&u[:x1p
Funkhouser and Patricia Lefevre, Export Development Specialists, Office ofk4H(ZLqUx8l
International Trade.  A special thanks to Sonja Katharina Satl who provided Q\z Z7C qh5C0{
meticulous editorial support for this project.  Kathy Parker and Sheldon'k.Q-G1N S.O
Snook, Office of International Trade; Ray Williams, Regional International
Trade Officer, Kansas City, Missouri; and Gene Brosterhous, International {E3tG$f8WB
Trade Director, National SCORE Office, also provided additional editorial7V!dF-I$S0F-Ea-G
support.  Developing Your International Business Plan was written at the'J;p#Wi5T;l^
Lake Michigan College Small Business Development Center (SBDC) and,p+boqH0W.Y
International Business Center.  The materials and worksheets were adapted
from the Oregon SBDC publication, "Your International Business Plan" at
Portland Community College.  The Lake Michigan College SBDC is partially@@Lem
funded under Cooperative Agreement No. SB-2M-00092-09 by the U.S. SmallmT5Kz"^2RN.i2y_+|
Business Administration.  Layout and cover design by Signal Communications,/{Nl3ir6Pn%xb
Bethesda, Maryland.  Breaking Into The Trade Game:  A Small Business Guide"q%]I+pRs$du*eG
to Exporting was produced by the U.S. Small Business Administration with
the assistance of The Global Source, Inc.

2006-6-11 10:09 vip

Introduction

The U.S. Small Business Administration's (SBA) Office of International
Trade (OIT) developed this Trade Guide as an information tool to assist
American business develop international markets.  This Guide will helpz&EVr"}{ d'@UR*C
answer questions and take the mystery out of exporting.  The United States
government has committed enormous resources to help small businesses, like
yours, reach overseas markets.  Did you know that:
~ `TnN6a vD
. the U.S. Small Business Administration (SBA) employs 76 District$b8R+V6A@wRA6Ce
International Trade Officers and 10 Regional International Trade Officers/s/i,F#?%N+a0y
throughout the United States as well has a 10-person international trade
staff in Washington, D.C.;)g+F \FY7~.Y Ie9^g
. the SBA, through its Service Corps of Retired Executives (SCORE)@eLlRm So
program, oversees 850 volunteers with international trade experience toc-k[[Id!~R[9a*~
provide one-on-one counseling to active and new-to-export businesses; ee9^H"J$cO o+I:h
. the SBA made 348 loans nationally to exporters for more than $1232Zq3x2w M9M-q'j
million in FY 1991 and 617 loans for more than $241 million in FY 1992;*q7M1hAVPBt8F&HNJ
. the SBA supports over 900 Small Business Development Centers (SBDCs). 4S{h._w
Some SBDCs have designated international trade centers; all SBDCs provide'w9p@D7z6e;s!R*uVU
export counseling, referral and/or training;
. the SBA coordinates the Export Legal Assistance Network (ELAN), a
nationwide group of international trade attorneys who provide free initial
consultations to small businesses on export related matters;^n:tY4o0g
. the U.S. Department of Commerce (DOC) International Trade%eHrb;EKd)v
Administration (ITA) U.S. and Foreign Commercial Service (US&FCS) has 68
offices throughout the United States and 120 overseas posts, representing
95 percent of the world market for U.S. products and services;.s7L~K;f;ECbB
. the ITA in Washington, D.C. has industry-specific specialists
monitoring export opportunities for U.S. products and services in every
sector, from abrasive products to zippers;8wGPpw
. the DOC sponsors 51 District Export Councils (DECs), comprised of
nearly 1,700 business and trade experts available on a volunteer basis to
help U.S. firms develop export strategies;
. the DOC Minority Export Development Consultants Program supports more
than 107 Minority Business Development Centers throughout the Unitedb@:d }mO
States;$}XIB8}^
. the U.S. Department of Agriculture (USDA) Foreign Agricultural Servicel7|Y_A-Z$s
(FAS) maintains a $30 million budget for export promotion of U.S.
commodities through trade fairs and other activities;"b B4fH x*vo$O8J
. like DOC, USDA has a large group of country specialists focusing on a'z|ad)zG
range of products from oilseeds to poultry;
. the Export-Import Bank of the United States (Eximbank) has trained eY,CbQKI
specialists in 24 states and in Puerto Rico through its City/State programb,z4h'tfi${*`
to provide export financing assistance to small businesses; 2yF2}Si[
. the Eximbank has financed over $11.3 billion of U.S. exports in 1991,
with 18.4 percent of Eximbank's authorizations going to support small
business exports?9w2R7Td;@

The SBA and a multitude of federal, state and local government agencies are?rEQx"q5evXg'i
ready to assist you in opening new avenues of opportunity in the
international marketplace.  With their help, and with the information8p)vnW/rxA+|rG1X;V
contained in this guide, you will find that access to international markets1P.c(v,lI7]d-be
is possible and profitable.

2006-6-11 10:10 vip

Overview

A SMALL BUSINESS EXPORT SUCCESS STORY

Small businesses throughout the United States have gained international0e'swa"?\_0\
exposure and increased profits through exporting. Consider the case of
Novi, Inc., a California-based business.  Company President Michael Stoff
tells his story:
$Q7~)M\)_xO
"In November of 1986, when I began my business venture, Novi, Inc., I knew
that my Tune-Tote (a stereo system for bicycles) had the potential to be
successful in international markets.  Although I had no prior experience in-p A`P;k'qt9Fu
this area, I began researching and collecting information on international
markets. I was willing to learn, and by targeting key sources for
information and guidance, I was able to penetrate international markets in6ky8mn%h ? IA?
a short period of time.  One vital source I used from the beginning was
SBA.  Through SBA I was directed to a program that dealt specifically with
business development -- the Service Corps of Retired Executives (SCORE).
I was assigned an advisor who had run his own import/export business for 30?xeyZk,ry1]]7`
years. The services of SCORE are provided on a continual basis and are
free. As I began to pursue exporting, my first step was a thorough
marketing evaluation.  I targeted trade shows with a good presence of+L$u DKUJ
international buyers.  I also went to DOC for counseling and information
about the rules and regulations of exporting.  I advertised my product in2H0S%Z2SKLO+F
Commercial News USA, distributed through United States embassies to buyers
worldwide.  I utilized DOC's World Traders Data Reports to get background
information on potential foreign buyers.  As a result, I received 60-70#GL tE,y/kQ8K
inquiries about Tune-Tote from around the world.  Once I completed my{o8aDS:K$O%\ B
research and evaluation of potential buyers, I decided which ones would beI/vY4A.\u-O5Q7Z x3o
most suitable to market my product internationally.  Then I decided toAZ+nNg.mFp+i
grant exclusive distributorship.  In order to effectively communicate withT+~nxc
my international customers, I invested in a fax.  I chose a U.S. bank to ?)n(ga k1~3g
handle international transactions.  The bank also provided guidance onzb;E,SRj)@
methods of payment and how best to receive and transmit money.  This is
essential know-how for anyone wanting to be successful in foreign markets."y`&AVQTYY!\Q%~
&r/B'h'Mno@ywG6o
Michael Stoff knows about success in foreign markets.  In just one year of
exporting, sales topped $1 million and increased 40 percent in the second
year of operations.  Today, Novi, Inc. is a large distributor of wireless
intercom systems which exports to over ten countries.  Breaking Into TheQJ/r8UP
Trade Game:  A Small Business Guide to Exporting can assist your company'so#f yVE@,E
international marketing efforts.  This Guide highlights the export successy3]&E(Y4h
stories of many small businesses.  It is both a comprehensive how-to manualIx.Ew+]T
and reference book providing you with the contacts and resources to ease
your entry into markets around the world.

   Part I:  Becoming an Export Success Story takes you through theZ1d:Zq\lk/^%p
exporting process with stories of small businesses all around the United`}3Hj3j5R+u`T
States that have found exporting to be an exciting and profitable way to
expand their business.D_/N$]B2p\9LMz
   Chapter 1:  Making the Export Decision includes an international
business plan to assess your company's export readiness, business goals and
commitment;8s9d6l8|{j jrs
   Chapter 2:  Identifying International Markets explains how to conductb D&~i@-jxo!R^
foreign market research and the resources available to assist you;(D!XqWZTH/QN6\
   Chapter 3:  Foreign Market Entry discusses methods of distributing
your product abroad with an emphasis on exporting;
   Chapter 4:  The Export Transaction details the steps involved incy)Xqox;Ox#M2Y:P
making trade happen, including setting prices, negotiating the sale and'ZxD6p,y;Al
determining legal aspects of exporting;
   Chapter 5:  Export Financing outlines government and private sector
financing resources and methods of payment;$|,G3w#Xr+JU#u"f L
   Chapter 6:  Transporting Goods Internationally focuses on moving goods@ld+vMc2b
overseas, including packaging and labelling; and Chapter 7:  Strategic
Alliances and Foreign Investment Opportunities explores other methods of
market entry beyond exporting, such as joint ventures and off-shore
manufacturing facilities.
)eDFpT0Uw,?~y)JV
   Part II:  The Exporter's Directory is a comprehensive directory of
contacts and information sources to assist you as you go global.

2006-6-11 10:11 vip

PART I: Becoming An Export Success Story

A SMALL BUSINESS EXPORT SUCCESS STORY
OkZTR6b1V%g
Small businesses throughout the United States have gained international
exposure and increased profits through exporting. Consider the case of@&cQt3]-?5z|)N
Novi, Inc., a California-based business.  Company President Michael Stoff
tells his story:~;Cf7S/I"KUqz koc
M#RI[1i9|
"In November of 1986, when I began my business venture, Novi, Inc., I knew
that my Tune-Tote (a stereo system for bicycles) had the potential to be
successful in international markets.  Although I had no prior experience in wJH2~y-uF|/SH
this area, I began researching and collecting information on internationalswI,E9eqon
markets. I was willing to learn, and by targeting key sources for
information and guidance, I was able to penetrate international markets in%}TLZ.?.^
a short period of time.  One vital source I used from the beginning was
SBA.  Through SBA I was directed to a program that dealt specifically withN_8[\zm3i&d.I0F
business development -- the Service Corps of Retired Executives (SCORE).
I was assigned an advisor who had run his own import/export business for 30
years. The services of SCORE are provided on a continual basis and are
free. As I began to pursue exporting, my first step was a thorough-bv*\v#F"~:d
marketing evaluation.  I targeted trade shows with a good presence of;zB-Y!f,U:X
international buyers.  I also went to DOC for counseling and informationD2vk9p%a&s*]4g`
about the rules and regulations of exporting.  I advertised my product in
Commercial News USA, distributed through United States embassies to buyers
worldwide.  I utilized DOC's World Traders Data Reports to get background
information on potential foreign buyers.  As a result, I received 60-70
inquiries about Tune-Tote from around the world.  Once I completed my
research and evaluation of potential buyers, I decided which ones would be`,I}N0d4at
most suitable to market my product internationally.  Then I decided to
grant exclusive distributorship.  In order to effectively communicate withu%x2PAH7`
my international customers, I invested in a fax.  I chose a U.S. bank to
handle international transactions.  The bank also provided guidance on&x{]7zeRRUD5a#d
methods of payment and how best to receive and transmit money.  This isFmT5Pv0wZL`I
essential know-how for anyone wanting to be successful in foreign markets."
Lg3a kkh-y
Michael Stoff knows about success in foreign markets.  In just one year ofA})y}cLN8t1cJ)]
exporting, sales topped $1 million and increased 40 percent in the second
year of operations.  Today, Novi, Inc. is a large distributor of wireless
intercom systems which exports to over ten countries.  Breaking Into The
Trade Game:  A Small Business Guide to Exporting can assist your company's
international marketing efforts.  This Guide highlights the export success
stories of many small businesses.  It is both a comprehensive how-to manual
and reference book providing you with the contacts and resources to ease)U8SE0P&fQ,p#q&j5y
your entry into markets around the world.

   Part I:  Becoming an Export Success Story takes you through they^0E:[#N_
exporting process with stories of small businesses all around the UnitedEDpd1L,He3J:VhFUx
States that have found exporting to be an exciting and profitable way tor8?%e4`-R1M
expand their business.
   Chapter 1:  Making the Export Decision includes an international0qh@[S1fR,ZC
business plan to assess your company's export readiness, business goals and
commitment;CMsQ5v0l q.F Z P
   Chapter 2:  Identifying International Markets explains how to conduct
foreign market research and the resources available to assist you;0g K&K(h+dp
   Chapter 3:  Foreign Market Entry discusses methods of distributing
your product abroad with an emphasis on exporting;kX*M5nW1tR|
   Chapter 4:  The Export Transaction details the steps involved in
making trade happen, including setting prices, negotiating the sale and
determining legal aspects of exporting;4H(uI!D4V.N;\0h$S
   Chapter 5:  Export Financing outlines government and private sector
financing resources and methods of payment;
   Chapter 6:  Transporting Goods Internationally focuses on moving goods
overseas, including packaging and labelling; and Chapter 7:  Strategic
Alliances and Foreign Investment Opportunities explores other methods of2A#w;~&n~}(F6v
market entry beyond exporting, such as joint ventures and off-shoregu!G*wt7}0j
manufacturing facilities.
&D uG1]t\0P
   Part II:  The Exporter's Directory is a comprehensive directory of
contacts and information sources to assist you as you go global.

2006-6-11 10:11 vip

Chapter 1 Making the Export Decision

Exporting is crucial to America's economic health.  Increased exports
mean business growth, and business growth means more jobs.  Yet, only a
small percentage of potential exporters take advantage of these!{-g+cy*[@5G5f
opportunities.  It is critical for U.S. businesses to think globally.  YourBz*FJ*h?Q} s
decision to read this book indicates an interest in exporting.  However, W8p%jJ t!A0@5w
you may have discovered your company is already competing internationally
-- foreign-owned companies are competing with you in your "domestic"A*C!P+U)O.Hw
markets.  The division between domestic and international markets is)akD;n!YAH5nuZ H
becoming increasingly blurred.  Your business cannot ignore international2v v&R!B@P
realities if you intend to maintain your market share and keep pace with8mG-_|/U$m!J3@b-|
your competitors.  Making the export decision requires careful assessment
of the advantages and disadvantages of expanding into new markets.  Once
the decision is made to export, an international business plan is5N?e7e7p,R
essential.  This chapter presents the advantages and disadvantages of
exporting and offers a sample business plan.sx \&N!XZ+R

ADVANTAGES AND DISADVANTAGES OF EXPORTING&P^*GvTjQI
   Consider some of the specific advantages of exporting.Exporting can
help your business:
   . enhance domestic competitiveness!x']P#af6?
   . increase sales and profits
   . gain global market share^(A XH t8H:l8v j
   . reduce dependence on existing markets
   . exploit corporate technology and know-howg+g7JOf;n&L#h
   . extend the sales potential of existing products
   . stabilize seasonal market fluctuations-tT'O cw @4E-Le/\
   . enhance potential for corporate expansion
   . sell excess production capacity
   . gain information about foreign competition
KV5mM"IAHt0h
   In comparison, there are certain disadvantages to exporting.Your-h?$NUv#}8]d
business may be required to:
   . develop new promotional material(p-m.Q%{~2Xf
   . subordinate short-term profits to long-term gainsb\F7d's!Qs
   . incur added administrative costs "y!\#E Sz1U5I-a+x
   . allocate personnel for travelv;f0Qo2I/b7YCXwR&u
   . wait longer for payments'JWi,y&O SBb
   . modify your product or packaging '`Fq0~Yz#a/|
   . apply for additional financing:g6Alwe&cH{
   . obtain special export licenses9|"iCN aY#i9qZs
(lX'P*M2e2JR ~vZ
These disadvantages may justify a decision to forego exporting at the
present time.  For example, if your company's financial situation is weak,
attempting to sell into foreign markets may be ill-timed.  On the other#\H%e6n$p^s&u[
hand, some companies have been successful selling abroad even before they2DL ~9`ezywhc
have made any sales domestically:

Landmark Systems of Vienna, Virginia, had virtually no domestic salesKEX\1f9t2t1f:jl#z
before it entered the European market.  Landmark had developed a software
program for IBM mainframe computers and located an independent distributor
in Europe to represent their product.  In their first year, 80 percent of.t8@lzz
their sales were attributed to exporting.  In their second year, sales9{%@%v&Ee0q
jumped from $100,000 to $1.4 million -- with 70 percent attributable to+eC|x#W{"UD1[
exports.  6Y8j5Tyf^)H

   As you can see, there are no hard-and-fast rules as to which
businesses should export, and which should not.  In the case of Landmark0?&F#Wk#}@"U)fk
Systems mentioned above, a foreign distributor produced results before any
significant domestic sales occurred.  Landmark Systems' decision to export,qQ(D} m;B
like that of many other small business exporters featured in this guide,
was based on careful planning.

THE NEED FOR AN INTERNATIONAL BUSINESS PLANz]E7s+_"G%`
   Behind most export success stories is a plan.  Whether formally+ChluE0t/I9y'h
written down, or sketched out informally at a meeting of your management
team, an international business plan is an essential tool to properly
evaluate all the factors that would affect your company's ability to go/C&EwY1W}0D
international.

   An international business plan should define your company's:
   . commitment to international trade;P2H.M0h7O7L!l7Kr
   . export pricing strategy;~y1l)I#R5P g
   . reason for exporting;
   . potential export markets and customers;+v(B#fw U0f c:j(kX*E
   . methods of foreign market entry;
   . exporting costs and projected revenues;|1L{I R7H m
   . export financing alternatives;C2_ jCg&Iv
   . legal requirements;L9ks8O p ^~9Dr
   . transportation method; and WO~{"f~'cc
   . overseas partnership and foreign investmentcapabilities.y;fq9c^X&cBz
   Creating an international business plan is important for defining your
company's present status, internal goals and commitment, but is also
required if you plan to seek export financing assistance.  Preparing the;~5E#["[5`L'ZnHs
plan in advance of making export loan requests from your bank can save time
and money.  Completing and analyzing an international business plan helps
you anticipate future goals, assemble facts, identify constraints and
create an action statement.  It should also set forth specific objectives,
an implementation timetable and milestones to gauge success.

2006-6-11 10:12 vip

International Business Plan

The purpose of the International Business Plan workbook is to prepare your
business to enter the international marketplace. This workbook will serve
as a step-by-step guide to lead you through the process of exporting your
product to an international market.  The workbook is divided into sections.

Each section must be completed before you start the next section.  After#M"o1_{%}1a
you have completed the entire workbook, you will be ready to develop an
international business plan to export your product.  Once the business plan
is completed, an in-depth analysis of your readiness to export can bee/\#f [3dkX9Ej)o |
completed. 0l!U {f9LW _4y!g4[;g
Ch[ dINe
PPRODUCTS/SERVICES  E ye2De'm-[@&R7e P

STEP 1: Select the most exportable products to be offeredW)Of^v*`p(@,N
internationally.o"BB%}ib gs
9_ A8d#W(on/L?*Y
To identify products with export potential for distribution^ zGb5@o^
internationally, you need to consider products that are successfully
distributed in the domestic market.  The product needs to fill a targeted
need for the purchaser in export markets according to price, value to{+Q2I2i Mx
customer/country and market demand.-E-|]M3u

What are the major products your business sells?

1. x)`;p&vFn

2.
(]4u6h@z
3.

What products have the best potential for international trade?
7W O7r~ c:y
1. (C+C1B2u*YP$}+F2u
k7B5HGZ~.LH
2. 8QG8|(Jmo {x
9J j;oV.[*Q&fh
3. ;Fzv(Rq9wB/hx/j
?k"\-EV/W!e!]N
STEP 2: Evaluate the products to be offered internationally.'D8nH N4Y1g.}0AZS
WS5fg(w6?%LY
What makes your products unique for an overseas market?q\ d.k\ Y
Pw)\4Y+M[A{
1.
2.J\ Oi9j7]fV

3.*l3?L6MR

Why will international buyers purchase the products from your company?

1.

2.
3.6taC.?6r_+Q7Uz
o-H,pvx'W#J
How much inventory will be necessary to sell overseas?P e;o.G:WJ]?)Ce
xK@Ob
1.

2.
Tbdeu^-P:v
3.

Exercise:
IDENTIFYING PRODUCTS WITH EXPORT POTENTIALs'x hp0L2`A
List below the products you believe have export potential.  Indicate the
reasons you believe each product will be successful in the international:Crj4n!rv4O
marketplace.

Products/Services             Reasons for Export Success\4Xp6bk(s

1.                            1.
2.                            2.9zq5y!N!{%P(Ph)J6H8M
3.                            3.:yRr,fNK
4.                            4.e.L5MR/r)rdb9F&_
5.                            5./h4f]o0Td5g+^g]d2KC
6.                            6.8K$`*^1`/K6\+W8h4Ta8x
7.                            7.'ZN$@Ud4NC
8.                            8.&Cd-e,}1EW3dq}
9.                            9.h r0m$uR"zWgoH
10.                         10.9CL}/]N E
11.                         11.
12.                         12.N1C;t!e+h9hsi qK
13.                         13.?-l-MQ\
14.                         14.l6VF,|HZ|X
\.LJJbk k5C
Decision Point:  These products have export potential.b {1\w0E#X

            YES             NO

PLANNINGf A gm!rF-C]

What is the purpose of completing this workbook?h ?q7Fs6F8E

   You know that you want to see your company grow through exporting.;fR)c-o oj@g~+A
&^u)j/Zz4Y
Five reasons it will be worth your time and effort:Mn9z\4C
   1. Careful completion of this workbook will help evaluate your level ]M?6N1I)B4`1xX
of commitment to exporting.
   2. The completed workbook can help you evaluate your product'sM_pjW*m d}
potential for the international trade market.,C3l1xF5p
   3. The workbook gives you a tool to help you better manage yourr8SAvez@
international business operations successfully.
   4. The completed workbook will help you communicate your business
ideas to persons outside your business and can be an excellent starting
point for developing an international financing proposal. -pzCc/t:{Wd
   5. Businesses managed are more successful when working from a
business plan.x yamG q0S'_C B
u.j2_"]VZ/K7}x~tY
Can't I hire someone to do this for me?`J4Vq s~'e
   No!  Nobody will do your thinking or make decisions for you. This is@j6U"Oa
your business.  If the business plan is to be useful, it must reflect your:y#Le&auU|~)Q9G
ideas and efforts -- not those of an outsider.

Why is planning so important?
   The planning process forces you to look at your future business
operations and anticipate what will happen.  This process better prepares-d-@u@5a9@q
you for the future and makes you more knowledgeable about your business. Aw,B%H@7B FJ
Planning is vital for marketing your product in an international
marketplace.
   Any firm considering entering into international business transactionsO(bMv O0B!Z
must understand that doing business internationally is not a simple task
nor one for the faint of heart.  It is stimulating and potentially?ItY0T2dcX/Hi
profitable in the long-term but requires much preparation and research
prior to the first transaction.
\8s)Tp7h5d:{zRQ*K
In considering products for the international market, a business needs to
be:

   1. Successful in its present domestic operation. Vt`*M7WY|;I8f
   2. Willing to commit its resources of time, people and capital to
the program.  Entry into the international market may take as long as two
years to generate profit with cash outflow during that period.
   3. Sensitive and aware of the cultural implications of doing1INtq:mi
business internationally.  q$uS-P$^TO8^W
   Developing a business plan helps you assess your present marketayl8cX)q)XW
situation, business goals, and commitment which will increase your
opportunities for success.c7x;FZ_7mV%Kez
_H5Vh/z0}_7cNq_
What's the bottom line for me if I do the plan?0a5];vfL:ZE
   Research shows that small business failure rates among new businessesp*I)ZeM|/P
are significantly lower for new businesses that have developed a business
plan.
cA$e8z7wM
Isn't planning just for the big companies?2W*~$O.YKhcT
   Planning is important for any organization that wants to approach thel1d.EPP2p0IE)W;O
future with a plan of action.  The future comes whether you are prepared(lJ)xUJIlX
for it or not.  A business plan helps you anticipate the future and make_e+y#E7O
well-informed decisions because you have thought about the alternatives youaC1]}/P@$x
will be facing.

How often do I have to do this?|c?n1|T,_y
   A plan must be revised as needed, at least once a year.  Planning is
a continuous process. You will be surprised how much easier it is to
develop a business plan after the first time.  Plus, after a revision or&Ji1v7r(cs.t5c
two you will know more about your international business market
opportunities to export products.
"a)v:P,^LXs7N?
GOAL SETTING2_X3LlDVo.f
wl/@6v+e0f2|4x
   Determining your business goals can be a very exciting and often
challenging process. It is, however, a very important step in planning your
entry into the international marketplace.  The following exercise is%mAkl~JY M(Z
intended to help you clarify your short and long-term business goals.
9m Dr:CQz
STEP 1: Define long-term goals.uZ?!Yl&d%T8\
6\+R*v6M9v3UXa)I%L
A)  What are your long-term goals for this business in the next 5 years? {a9l1M/H\7?8e
Examples:  increase export sales by ___% annually; develop country cultural{C?i&P:I#]
profiles.
o-A$[!dY9_b

{2~?e8Y6z

B)  How will the international trade market help you reach your long-term
goals?
]!{Bw&h6K? ~
4[%ii7C F%TV:b

5wK;RZ9kT

STEP 2: Define short-term goals.Q/mlsA0F;i/S%hz

A)  For your international business, what are your first year goals?
Examples: attend export seminars, select a freight forwarder.

\}(S@bFuF1e%D

B)  What are your two-year goals for your international business
products/services?

W#h V4CIWJ(z

STEP 3: Develop an action plan to reach your short-term goals by usingbWOk$}K2TaQ{
international trade.%Drb3p[L-@.n

4cVI1lc#cyR;V

INDUSTRY ANALYSIS1Y#XY2A)L/v(]qW
"A(Ws0p T,]/b-MEl
STEP 1: Determine your industry's growth for the next 3 years. XJ!u[+w!gS&M

   Talk to people in the same business or industry, research
industry-specific magazines, attend trade fairs and seminars.

E5UN!m{z,m
*~a0c4P8^6_*~7i$SG&LV

STEP 2: Research how competitive your industry is in the global markets.J2DU!A"o_2~8@)n

   Utilize the National Trade Data Bank (NTDB), obtain import/export]kH8{R|L)EIq
statistics from the Bureau of the Census, and contact the U.S. Small!@|jD"SVD
Business Administration (SBA) or the U.S. Department of Commerce (DOC)
district office in your area.;J)p#v#c8Pp*TG&z

%V6v2W}~FtH B
STEP 3: Find out your industry's future growth in the international
market.  U&Dy/p:b_ kc

   Contact the SBA or the U.S. Foreign & Commercial Service (US & FCS)
district office and contact a DOC country or industry desk in Washington,
D.C.]P?lcKFZ
F;V_?\V\%GUX`

iS.w J |
STEP 4: Research federal or state government market studies that havej$p5D8hZHc7if
been conducted on your industry's potential international markets.  K+livaX

   Contact SBA, your state international trade office, a DOC country or
industry desk in Washington, D.C.
t.Ed8HK
8e#O%Q#a l5n1jYd*C.a
|2k9F$wFW`

STEP 5: Find export data available on your industry.
A7`f;h`mw U
   Contact your SBA or DOC district office.
9VN#PF'p7T1{SIU0T

WV&v`1_ a
]i8N,UX u
YOUR BUSINESS/COMPANY ANALYSIS$tbXc;of U7s-r
+_4H,M@2jw;q!px8J
STEP 1: Why is your business successful in the domestic market?  What's4a-T#O4c H|d
your growth rate?-]q,}$| OkcV
1@ eMt8ne8M

STEP 2: What products do you feel have export potential?
$@sM)_n.C7\Pb Z1u

STEP 3: What are the competitive advantages of your products or business$dc:}7z/h8l^"y:q
over other domestic and international businesses?*fS4?4ad:L6tm.k

GF+]xdN'Gh

,f ])_9mW UrD
PROS AND CONS OF MARKET EXPANSION
   Brainstorm a list of pros and cons for expanding your market
internationally.  Based on your product and market knowledge, determine)_#^$S0A4D
your probability of success in the international market.+C6xhN5J
LE c:g,XN
Industry/Product: }!l9E1Rq&G

Pros                                        Cons*[#m$Y'?%OK*\
1.                                        1.&U$L9Q~5eX1Y{$^%o I
2.                                        2.#Iy JH'~H
3.                                        3.
4.                                        4.:F,ct@+t:wnmly"F.es
5.                                        5.
6.                                        6.S9Bzt+gLq:n.\`C
7.                                        7.N1gJd3jTwi
8.                                        8.2a mZ6iT&L |
9.                                        9.*X+R\9t\HxHra
10.                                        10.~4^ E @,?'M3b%S
11.                                        11.p[ ZB!m_
12.                                        12.}x*q$f[g*~

PROBABILITY OF SUCCESS

0%          25%          50%          75%          100%
&d)hY|)nn
MARKETING YOUR PRODUCT
   Given the market potential for your products in international markets,lQ&t*QYQW.l
how is your product unique?$W;D:z}(k3~
8p(Z#Y"mCT-q;?

1. What are your product's advantages?1Y ]6z nk k

lLO*b y }(uJb

2. What are your product's disadvantages?

9Al.Lt+@R$mZEb*v

3. What are the competitive product's advantages?

EPEX;dOq
)@dto_8{~(uW"j
T [ C6^!yfs
4. What are the competitive product's disadvantages?

%`^R ~_
lL9~Jg*mcQ
What are the needs that will be filled by your product in a foreign market?

k0t{pM*Za8V
it7Qy]TTB8jn,P
What competitive products are sold abroad and to whom?
#a0b,S` WeU
JnSbLjV$SZ

How complex is your product?  What skills or special training are required
to:pr V5u j}N

1. Install your product?

2. Use your product?zQ} xS%wyfQ

3. Maintain your product?
*oc UoD6h(g

4. Service your product?
(d i:UmaD`
RHsbqO

What options and accessories are available?Zd2Q0mLOd iv2op
;d&v4c2e U7?/}
1. Has an aftermarket been developed for your product?
0ljS(]qg
GM+uqS)o1g{
4]psCO5a W/Q
2. What other equipment does the buyer need to use your product?b9t&SY0k"l/Ww

y*h;~mV!M
3. What complementary goods does your product require?@ ~v"L8U&A?@

)MTwZ`D
If your product is an industrial good:YQ|N)E)^F#k j:B.B#Y7q

1. What firms are likely to use it?
A9jp4d{2j p
/KU@Uw^$Skn

2. What is the useful life of your product?
jiqM9ci}a4v?

2iE)__;lS4q9F,U
3. Is use or life affected by climate?  If so, how?Gf;}k%d4J

!M;v&g KAf.g@r

4. Will geography affect product purchase, for example transportationFZ4v7V(FP
problems?u.XM r uXc

}g,V.HY_#j8_7K,P
5. Will the product be restricted abroad, for example tariffs, quotas orEYp,~.MJ,q;t[Q!P&A
non-tariff barriers?

[+?#?5vX

If the product is a consumer good:4K@S }X
#sVKlh6K
1. Who will consume it? How frequently will the product be bought?,n*u8a+KUe{

SB8OPF)|

2. Is consumption affected by climate?4n P ujFWCj4g$v

XL'n3|Tn'JK
2nC*W6s2m
3. Is consumption affected by geography, for example transportation
problems?^7R)j sffp
3i!X6{Y\x pf(yK
5e)q*O~+K rY2}.G
%zsGQ5\
4. Will the product be restricted abroad for example tariffs, quotas or}@7Ac&H4uX5A%B G*M
non-tariff barriers?
0W'S/cf]4pURF6~8Cm
JpL ^'|w d

5. Does your product conflict with traditions, habits or beliefs of-oT [v3u1l
customers abroad?
?agE8z-{ZODUN+I3g

STEP 1:~(Z0k K%Lhmc
Select the best countries to market your product.xV3oG)x6d!hD
@\fH5w;{
   The U.S. Small Business Administration and the United States andYK.{qHG
Foreign Commercial Service may be of assistance in providing product markettFm7E U;b#t
analysis.
   Since the number of world markets to be considered by a company is
very large, it is neither possible nor advisable to research them all.
Thus, your firm's time and money are spent most efficiently by using a
sequential screening process.(c|#j2\vaS;]W(f
   The first step in this sequential screening process for the company is:g W~%l/J;y'V/z[k!HO#T
to select the more attractive countries for your product.  Preliminary|ZJ&Ia1T(l
screening involves defining the physical, political, economic and cultural
environment.  Rate the following market factors in each category.R6iF;[U1b DK

   (1) Select 2 countries you think have the best marketpotential for
your product;O0M1R w.U)a a`
   (2) Review the market factors for each country;
   (3) Research data/information for each country;
   (4) Rate each factor on a scale of 1-5 with 5 being thebest; and
   (5) Select a target market country based on your ratings:h cj [q?N

MARKET FACTOR ASSESSMENT          COUNTRY/RATING  COUNTRY/RATING.fPT(B4gT5vNu

Demographic/Physical Environment:
   . Population size, growth, densityd&?V:e*{6m0h'wh
   . Urban and rural distributionq2dU1[y!?*w j
   . Climate and weather variationsn)q}g9B4i
   . Shipping distance
   . Product-significant demographics
   . Physical distribution and
      communication network8T)c da~%l_2K7em
   . Natural resources

Political Environment:
   . System of government
   . Political stability and continuity
   . Ideological orientationswc]"t*y}4Gh
   . Government involvement in
      business(ki*Z}o&wRX
   . Attitudes toward foreign business
      (trade restrictions, tariffs, 2xH,^nE4P
      non-tariff barriers, bilateral d!ba7~L7HBzh
      trade agreements)
   . National economic and
      developmental priorities!tmKrE VM
"WK d+\8kB;fs$Pb
MARKET FACTOR ASSESSMENT          COUNTRY/RATING  COUNTRY/RATING"i f1Y@,p_ r

Economic Environment:
   . Overall level of development
   . Economic growth:/s,Of(Z4qQu@C
      GNP, industrial sector
   . Role of foreign trade in the
      economy
   . Currency:  inflation rate,(O"w'e#?fw L W
      availability, controls, stability
      of exchange rategt_d;qR}|bO
   . Balance of payments1l0x/g&a$^tTi,Dg
   . Per capita income and distribution
   . Disposable income and%a"a9n'h7C F} OV#r.R
      expenditure patterns)lS'|gF-vw

Social/Cultural Environment:
   . Literacy rate, educational level/nep]#qX ^U!`2m
   . Existence of middle class:_aVRXl'C
   . Similarities and differences in1Akb[Wxhm5\
      relation to home market
   . Language and other cultural
      considerationsHfF D_

Market Access:o3nd"H |2VG&Q
   . Limitations on trade:
      high tariff levels, quotas t7`-D d0X"]
   . Documentation and uW3C2cLz9a
      import regulations
   . Local standards, practices, and%sq!Yf(d3]5jn!k
      other non-tariff barriers
   . Patents and trademark protection#fG{.juA
   . Preferential treaties
   . Legal considerations for
      investment, taxation, repatriation, F1q]C'S*E
      employment, code of laws6G4["s0x D j@R$J

Product Potential:
   . Customer needs and desires
   . Local production, imports,
      consumptionlI*Zk7bK
   . Exposure to and acceptance8@H{ B2Lf"_%g4G
      of productA2C;?Zn/G h
   . Availability of linking products$rwe EIM
   . Industry-specific key indicators
      of demand0{eW~Sxj'W
   . Attitudes toward products of[/?O.RT({
      foreign origin*}s5n%qwL*K `
   . Competitive offerings VS"Ra;P+Oe
)G'NI${.C

MARKET FACTOR ASSESSMENT          COUNTRY/RATING  COUNTRY/RATING;j3U,Qm/zA R La

Local Distribution and Production:
   . Availability of intermediaries
   . Regional and local transportation2J3`m{BuW
      facilities
   . Availability of manpower4_r.n%a#l$Oo
   . Conditions for local manufactureCt`c"qv'@"D
7M6~\Aq
   Indicators of population, income levels and consumption patternsg)_7l%ZK9Fg
should be considered.  In addition, statistics on local production trends,
along with imports and exports of the product category, are helpful forkId.l$N2b}"B#`
assessing industry market potential.  Often, an industry will have a few
key indicators or measures that will help them determine the industryk6[/JtA,|J-j
strength and demand within an international market.  A manufacturer of
medical equipment, for example, may use the number of hospital beds, the1xkxY7r-D
number of surgeries and public expenditures for health care as indicators?I4?['V e3Hq~,r&f[
to assess the potential for its products.#p^?2e&],p
"KOs}&D;]&C
What are the projected growth rates for the two countries selected over the
next 3-5 years?

(Aq:H1D#|S#Zm

STEP 2:
Determine Projected Sales Levels

What is your present U.S. market percentage?2AIY}} b%]:W
O?6cFMnXi
d"Lv1A}

What are the projected sales for similar products in your chosen
international markets for the coming year?+ED3@-k&G.\0r3A#n

P]~K'ax-d2X'{
What sales volume will you project for your products in these internationalU1fu?(F{
markets for the coming year?\1^H1B3vK V
,Wy7A1sM7D

What is the projected growth in these international markets over the next)p6@7Zjt#}
five years?
/X/Th~e9st
V*~,_0Cf)Z-?

STEP 3:
Identify Customers Within Your Chosen Markets @8];b o.EgGm7u1H w}

What companies, agents or distributors have purchased similar products?
r sgpR{
s!u ]9TP
!lc2S9c`5Mg
What companies, agents or distributors have made recent requests forV X/O!mFgLj
information on similar products?m d M(D8N7Y Cdm4m

What companies, agents or distributors would most likely be prospective
customers for your export products?;@W%L(K2P)o
EU%Tv'J~&LD#m
4n!J4J'f"b&m4j0Z,RY)Z

STEP 4:
Determine Method Of Exporting

How do other U.S. firms sell in the markets you have chosen?
q EX.rp7X;U
tt"y~ A2UW)E
|C([gM3j
Will you sell direct to the customer?
uKTc9RU
1. Who will represent your firm?S7@5k2`}/Us
%e#f G l"EC ~J
$[a5C}T6d
3|(y| yi V:\:c/x#s
2. Who will service the customers needs?-VG:g D%rkyX)i_5S
4HlVu$XWh
5~D1BUA^4oH

STEP 5:  Building A Distributor or Agent Relationship;Qn7z?d#Bk&C2h H

Will you appoint an agent or distributor to handle your export market?

1. What facilities does the agent or distributor need to service the
market?
[IVy}.dHq v qv ?

ZU/FR'O
2. What type of client should your agent or distributor be familiar with in:]Qe5M6\ {P$C;b
order to sell your product?

3. What territory should the agent or distributor cover?
A*GDj(j _T^G*F

)MIo$KO/Jw
4. What financial strength should the agent or distributor have?j f^/sVQ}

(At!xt-f/jT)d,_P$u
Do ?KP5t{/ab
%sqJGY)VK/{n
5. What other competitive or non-competitive lines are acceptable or not.^c$\%A7h)n:?
acceptable for the agent or distributor to carry?a7T\$|r c+d

-z a#YV9X!x'}(}-b j
6. How many sales representatives does the agent or distributor need and
how often will they cover the territory?%X7\7`d6r4}dT k
fR#pBw:`X4dxop

7qud,~]o |
Will you use an export management company to do your marketing and2qZdk/bPF2S'P9E
distribution for you?,y\d1R'W1pg1{%N

                  YES                NOW'Ap5Q!|4`MT
/jw't:c4FF
If yes, have you developed an acceptable sales and marketing plan with8\B m+Mx2U2\qM)Zk7b-|
realistic goals you can agree to?
v'sg$n%fU+AI Q&e
                  YES                NO2d9LA6O-l[+i
1Q7tY9MZ
Comments:A|ypP5g;u
&pX;I)gVx)cEk
l^/eo ]4j

E@'zIq0A`&R
U,t5B'R&c6?
SUPPORT FUNCTIONS
   To achieve efficient sales offerings to buyers in the targeted
markets, several concerns regarding products, literature and customeraD(Y]7rYG2fl
relations should be addressed.W*FE:m];}

STEP 1:,ATQGxm!K t
Identify product concerns.3pwlP!T%YJ
1POj9|E4t
Can the potential buyer see a functioning model or sample of your product
that is substantially the same as would be received from production?

                  YES                NO&jcuAsO6v
sQ8a5y-R:z L8S$E
Comments:
1Io2]*[RwW\a7|`
![&@ c:k5H O#h-n

What product labeling requirements must be met? (Metric measurements, AC or
DC electrical, voltage, etc.)  Keep in mind that the European Community nowP8Wg[A:_I1|
requires 3 languages on all new packaging.

$cS#S-G7V
When and how can product conversion requirements be obtained?
b.bm8T&G SZ
P eG.A/U
]-mFo1kY
Can product be delivered on time as ordered?

                  YES                NO[ TP({ sT?

Comments:

L4lj%Pww
STEP 2:#o|fd6Qj"VS
Identify literature concerns.
B_-kR2iO2x
If required, will you have literature in language other than English?

                  YES                NO
:`][6jS%N\
Do you need a product literature translator to handle the technicalaQ9w&N L7S*^8vg-\}
language?

                  YES                NOps8N4U)Rv x?)d
CMrT^E
What special concerns should be addressed in sales literature to ensure
quality and informative representation of your product?:@r!g.m#mH!x0gdw6r
j$i:bo6R-`IH't
5^ ]6v:?1bd_^.nC

STEP 3:ZVIqRi-c
Identify customer relations concerns.

What is delivery time and method of shipment?t(Z$pM a&u mY
$AC5`BHe
8Lj:x.WDy@

What are payment terms?

What are the warranty terms?
z$`9Y;q9X1C5l_

Who will service the product when needed?L"b1OR\$wL

How will you communicate with your customer? . . . through a local agent,
telex or fax?
.FQ%e[p]N,XUZ`2v
gVc5K,u9O|~OA
_H"^4^4uhGx

p_+E&l&N
RKX6F-~j
Are you prepared to give the same order and delivery preference to your
international customers that you give to your domestic customers?
l dO2W5k/B7J
                  YES                NO
J4Q3VmK%Ply;i
MARKETING STRATEGY
   In international sales, the chosen "terms of sale" are most important.)r.V*h^b&sB
UXQ bHT me:B
Where should you make the product available at your plant:  at the port of4msm9H:RU;sD*]
exit, landed at the port of importation or delivered free and clear to the
customer's door?  The answer to this question involves determining what the&Fx}YyER5tB
market requires, and how much risk you are willing to take.h+SgMi'O.I
   Pricing strategy depends on "terms of sale" and also considers
value-added services of bringing the product to the international market.

STEP 1:
Define International Pricing Strategy.(w7y7HB/oM

How do you calculate the price for each product?#uoEdW_[uP
8_-P$x&[h'y:l

What factors have you considered in setting prices?
%t}]d0z-y8p
#Lu'Sw,@w"Y*d-jG
9G`L,r.]-e4Y{c~
Which products' sales are very sensitive to price changes?I/Lunp(jqa

Z'J(_7_@[ Fl
How important is pricing in your overall marketing strategy?

Qp\XF3X

What are your discount policies?
i:F,p@uRCR}B

7eJ|o"th[
What terms of sales are best for your export product?'d D;`\"q
x$A%g nL#f"}C
I+O\X)s"\S

STEP 2:%m/HlQy9D5t$E
Define promotional strategy

What advertising materials will you use?
&d f0i*J-H

%F oH3x6?c

1QyV*eJ Gl$t"`
What trade shows or trade missions will you participate in, if any?G$FZ-L}X7y4t

What time of year and how often will foreign travel be made to customer,_%rd3Emx S
markets?
*IeE;ohuh

STEP 3:9x-Q g6}.kw.^%tU
Define customer services

What special customer services do you offer?3Q`3ML Yn6{,c
8DU ~)V fJ0} l5F1e
y9}.Ez%^`1Nc5sn

What types of payment options do you offer?F3GnZ#N

How do you handle merchandise that customers return?8VH4k,s|P.g;w$L1VxS

yFp.V%Lpcm
:\I,nL,`/\0R"P/z-Z
SALES FORECASTM)U4VQGP QA
   Forecasting sales of your product is the starting point for your
financial projections.  The sales forecast is extremely important, so it is`s5]c}B
important you use realistic estimates.  Remember that sales forecasts showj*j)?:C~J&}1p6Hw
the expected time the sale is made.  Actual cash flow will be impacted by$g!A7S8Y/\9V GB0k
delivery date and payment terms.

Step 1:]zopw
Fill in the units-sold line for markets 1, 2, and 3 for each year on the4Ax#CK_*xt
following worksheet.&bS%J5C(X0_L

Step 2:E&a$XR#F!L{5`
Fill in the sales price per unit for products sold in markets 1, 2 and 3.

Step 3:7D+y Vv$m)d0~;e
Calculate the total sales for each of the different markets (units sold  x
sales price per unit).{4@!p)D L-`
uj$d!UL%@6I
Step 4:&VJ`bAq(f
Calculate the sales (all markets) for each year - add down the columns.4AE0A`H+Ajv,O
sS O [hi
Step 5:6BB2B`_CM*zc
Calculate the five year total sales for each market - add across the rows.V5[:D m2L%o IC1Z Y/@(O

SALES FORECASTS - FIRST FIVE YEARS jh4wB~-~
                                    1 2 3 4 5 UR#A]_[X5n
Market 1
   Units SoldH-x5fj`0YIhX
   Sale Price/Unit
      Total Sales
Market 2
   Units Sold,[ eS,r4B.EY%_+k5Z
   Sale Price/Unit
      Total Salese+^!g&Og4~ i!c
Market 3/iGmp(K}
   Units Sold
   Sale Price/Unit(rP-sR+M~`&E
      Total Sales`Tn*|bo6tf0^!d3m
Total Saleshw!l;B6nDT#`C
   All Markets

COST OF GOODS SOLD
   The cost of goods sold internationally is partially determined by/k Q"U0]qvoX
pricing strategies and terms of sale.  To ascertain the costs associated
with the different terms of sale, it will be necessary to consult anjN.YI"GK+e
international freight forwarder.  For example, a typical term of sale)@\7i&CEq:eBE9N
offered by a U.S. exporter is cost, insurance and freight (CIF) port of
destination.  Your price includes all the costs to move product to the portI~a I(rg)j
of destination.  A typical cost work sheet will include some of the+hBfJL*J/XB6['HD
following factors.  These costs are in addition to the material and laborp^n6zp"[%efm
used in the manufacture of your product.h%`1Tt?^

   export packing          forwarding
   container loading       documentation *T|$]/y&F.b6v j,dio#I\
   inland freight          consular legalization:Z:@,@*f:B
   truck/rail unloading    bank documentation    d|p(K mJ tU
   wharfage                dispatch
   handling                bank collection fees
   terminal charges       cargo insuranceNV8_o*_
   ocean freight          other misc.
   bunker surcharge       telexE X9{r,V"?
   courier mail k(G,k~I7\$iZ
xM5c^\ |e
   To complete this worksheet, you will need to use data from the sales
forecast.  Certain costs related to your terms of sale may also have to be$j?*G8OR0u;mB
considered.

Step 1:
Fill in the units-sold line for market 1, 2, and 3 for each year.
ue6Y6A5^#iC{
~,gQ#U"K1M5h
Step 2:)g5d k;m3I-^-})ub
Fill in the cost per unit for products sold in markets 1, 2, and 3.
,O q YM%]z:pZ Po$~
9zvTh&gu
Step 3:
Calculate the total cost for each of the products - (units sold x cost per
unit).e9m WTX5[
5o9^h'}rq:k%O7rLHt

Step 4:
Calculate the cost of goods sold - all products for each year - add downjhJE ~Z,\
the columns. R!f:S}U|(]K

E2bB(y[Q
Step 5:4hEyZ"CS
Calculate the five-year cost of goods for each market - add across the
rows.
LD:Eu@3id

COST OF GOODS SOLD - FIRST FIVE YEARS#r#_#i6\3Dq
                                    1 2 3 4 57w0`2D)N^

Market 1Xf:M,o8|LA9F2{ u
   Units SoldVJ:K}Wr&x0K
   Sale Price/UnitN7N g \n;x.IN
      Total Cost
Market 2\3IpcIa GV!OF)Z,l
   Units Sold
   Sale Price/Unit
      Total Cost PEUI5]A
Market 3.q+r4HC&z_"pA
   Units SoldppY6S*H;j;?4_:O"w
   Sale Price/Unit
      Total Cost
Cost of Goods Sold
   All Markets
o*R2p&H*Z/@tc1` u

INTERNATIONAL OVERHEAD EXPENSES"Y6Bw| KQE&o
   To determine overhead costs for your export products, you should be ?6GUK-NS7W,U
certain to include costs that pertain only to international marketing
efforts.  For example, costs for domestic advertising of service that dop4i7^Y"XQg
not pertain to the international market should not be included.  Examples
of most typical expense categories for an export business are listed on the:w*l6y%IdQ4m~0]
next page.  Some of these expenses will be first year start-up expenses,vH$U%W'B2Ne
and others will occur every year.

Step 1:}$Fkld#~
Review the expenses listed on the next page.  These are expenses that will
be incurred because of your international business. There may be otherls?#P_ H1S
expense categories not listed -- list them under "other expenses."
er8VJ2k+c
f+| Hp6y
Step 2:jj$H U4cgE
Estimate your cost for each expense category.#OK%O p VYe]d+t

'tD:aXD(Z2N
V!}9p'm)a4e,z's
Step 3:
Estimate any domestic marketing expense included that is not applicable to
international sales.
*rO@[.WB3fEg

#p_B*I7[y8X%T?#Kj
Step 4:Q0P5ld)i
Calculate the total for your international overhead expenses.
:_%h+c~wY+cKz]g

EXPENSE                COSTa'e`-`aM1k;su
                     Market 1  Market 2  Market 3  Total Yr 1 Legal Fees/{'L'B/d%_8fF`T
Accounting Fees
Promotional Material
Travel
Communication
Equip/Telex3n%`9wt8{%D-bv
Advertising Allowances|e5{ Nq2T.H&V6}6C
Promotional Expenses {6sW:P [f/@vh$SBX
(e.g., trade shows, etc.)
Other Expenses
-p2J?)j#W.j
-mL!JG&^Ba
'ldKPR;Y5}
Total Expenses'}'oe/sRy.N
Less Domestic Expenses
Included Above, if any
Total International
Start-up Expenses!yeu/~D"Y@pGy

q4? Pu1H(l.O
PROJECTED INCOME STATEMENT - YEAR 1 to 5, ALL MARKETSI-Fd&NH'T^2f3bD
   You are now ready to assemble the data for your projected income-r-z$EJB \C i1p%Z
statement.  This statement will calculate your net profit or net loss
(before income taxes) for each year."Y"ius&vZ}f

Step 1:/\P"V"au#tR6T5Ya,^
Fill in the sales for each year. You already estimated these figures; just
recopy them on the work sheet./F[&y Uy5B

Step 2:L(jqZ?d]*f4?;oO_9{
Fill in the cost of goods sold for each year. You already estimated thesezm1k`F xpN)B
figures, just recopy on the work sheet.

Step 3:
Calculate the Gross Margin for each year (Sales minus Cost of Goods Sold).

Step 4:
Calculate the Total Operating Expenses for each year..ueX-|5h{7XN

Step 5: U$A%a,a9O5JS
Calculate the Net Profit or Net Loss (Before Income Taxes) for each year8w-{ L)U#a,[7\ @
(Gross Margin minus Total Operating Expenses).0r6Z}F*k|

PROJECTED INCOME STATEMENT - YEAR 1 to 5, ALL MARKETS
   DECH!roSN{
                                    1 2 3 4 5
International Sales
Cost of Goods Sold
Gross Margin ?W7K9nse
5| |8h0\+f;_
International Operating Expenses:]3?i4F!K/[(JF/De2m
LegalH(]d | I:B z
Accounting$Q M_R0kMjQp
Advertising
Travel
Trade shows2IdK~g5zV
Promotional Material6tC/z/U(sUj-p
Supplies
Communication Equipment1H `9x\fb5C
Interest:w2SGMG|6|8w8H!wAo{
Insurance:g\\ SoK
Other
B#P$mo"kOC_D
Total International Operating Expenses

r#{s} \jfK'b
5k9m1O.E-BL G]
BREAK-EVEN ANALYSIS,C"fqN5DJ
   The break-even is the level of sales at which your total sales exactlyQV2g-d5cKb
covers your total costs and operating expenses.  This level of sales is
called the Break-Even Point Sales Level (BEP sales).8W ^B/\~/AI
   In other words, at the BEP sales level, you will make a zero profit. ?MIz]*D
If you sell more than the BEP sales level, you will make a net profit.  If
you sell less than the BEP sales level, you will have a net loss.
   The worksheet will calculate your BEP sales level for any year of
operations.  The steps listed below will assume that you are calculating}zmo!E%lI P3W+o
the BEP sales level for Year 1.
ir(h1B8q$Y`
Step 1:
Fill in your Total Sales, Total Cost of Goods Sold, and Total Gross Marginx3y$h^7nr+{W!N%Mmp
for Year 1 on the following page.+H@;Sd(X9t%n#kFi

Step 2:
Calculate the Gross Margin percent using the formula which is given on the
work sheet. The Gross Margin percent tells you what percentage of each
dollar of sales results in Gross Margin.

Step 3:7ZS%Z$ANSw8]R"A
Fill in the Total Operating Expenses for Year 1.
L@:F2O}(Wa\ EIC
Step 4::[htwY
Calculate the BEP sales level using the formula which is given. Your need
to reach this level of sales just to break even.

   Note: In addition to a break-even analysis, it is highly recommended
that a profit and loss statement be generated for the first few actual
international transactions. Since there are a great number of variablestp+IO~8S/H
relating to costs of goods, real transactions are required to establish
actual profitability and minimize the risk of losses.

STEP 1:
   Total Sales                      $
   Total Cost of Goods Sold          $9K+O-T;@)UEq
   Total Gross Margin                $
DQZ)|%I1q'_
STEP 2:)]~!_bbo1p
   Total Gross Margin                $C[*W6fK D:Sl
   Gross Margin %                   $q^n-~$I*Sv
   Total Sales                      $
&Et`!RbrG
   Gross Margin % = 0.             ,K!R!?d~t+Bj.|^
   (Leave the Gross Margin $ in a decimal format.  The format is 0.347 -I^_/g Z){f9Vq$K:@
not 34.7%).

STEP 3:
   Total Operating Expenses          $

STEP 4:4B!a4X"x|2fCl)f
   Total Operating Expenses          $ejF5lVI%j
   BEP Sales Level                   $Pr`X3}!E1mT;v1r
   Gross Margin %                   $,}4h9E#Z(@HNUiS
   BEP Sales Level                   $
:]J,p} V'_&M(u&Pg

n5lCj,uf,@
TIMETABLES F~x3X;wRy
   This is a worksheet that you will need to work on periodically as you
progress in the workbook.  The purpose is to ensure that key tasks are
identified and completed to increase the success of your international
business.]&EEPEm5r+ONY
P#V8W+Uejt)I%yuo
STEP 1:
Identify key activities
   By reviewing other portions of your business plan, compile a list of
tasks that are vital to the successful operation of your business.  Be sure
to include travel to your chosen market as applicable.o!}+W1@4|[y

STEP 2:#}3OJ6X(iS%k7f~~X
Assign responsibility for each activity'X$v e.LCoa!ES
   For each identified activity, assign one person primary responsibilityi@/{5Js7M
for the completion of that activity.p$k/Blz"G*d`N

STEP 3:
Determine scheduled start date&Qz.DrWx dZ
   For each activity determine the date when work will begin. You should
consider how the activity fits into your overall plan as well as the'\s2cj#u+E&P"s
availability of the person responsible.

STEP 4:
Determine scheduled finish datec(GE*s*|\~O}
   For each activity determine when the activity must be completed.FQ z+LnJ ^8W9k

)t(m'ZM8KvF

ACTION PLAN
PROJECT/TASK          PERSON       START DATE/FINISH DATE

(jVWC$c"F"G

#{ R6P6@ [6Z'h{9j%@
SUMMARY9{XAy#e lJ
)T|uYc}-n V
STEP 1:
Verify completion of previous pages._8T[h5}"?P
   You should have finished all the other sections in the workbook before
continuing any further.
u k5j,vR LIl;|
STEP 2:
Identify your business plan audience.(?]$o`%lM&?
   What type of person are you intending to satisfy with this businessCN$KQ5^C'd
plan?  The summary should briefly address all the major issues that are0[`D*dL/YL'_
important to this person.  Keep in mind that this page will probably be the
first read by this person.  It is extremely important the summary be brief
yet contain the information most important to the reader.  This section
should make the reader want to read the rest of your plan.o\8uRMK%c9I;[

STEP 3:
Write a one-page summary.nyU@d
   You will now need to write no more than a page summarizing all the7d?s&T;[3L%Uwcx
previous work sheets you have completed.  d5]5I#Qx-^3G+z l)X
   Determine which sections are going to be most interesting to yours1t!zG\r!Qm&Ai
reader.  Write one to three sentences that summarize each of the important^,WQ/Ley1a
sections.  e*r\v;?b znqb$}U*Q
   These sentences should appear in the order of the sections of yourj7tP;P7}{8dk
business plan.  The sentences must fit together to form a summary and not3u%[T D5{3ru
appear to be a group of loosely related thoughts.
   You may want to have several different summaries, depending on who
will read the business plan.#@S%_;W `

INTERNATIONAL BUSINESS PLAN SUMMARY:4b6g~D"~R;c
6U[ez*F u ^
^lx[]#W(QGX
z:fi D:_Muk A

PREPARING AN EXPORT PRICE QUOTATIONn*m"z'V|o
   Setting proper export prices is crucial to a successful international
sales program; prices must be high enough to generate a reasonable profit, L3A"wWgt/T
yet low enough to be competitive in overseas markets.  Basic pricingh;L'w#S9o0I
criteria - costs, market demand, and competition - are the same for9`KN9gY5U]^
domestic and foreign sales.  However, a thorough analysis of all cost
factors going into a cost, insurance and freight (CIF) quotation may result~;O7W6l6H+h g:HW
in prices that are different from domestic ones.
   "Marginal cost" pricing is the most realistic and frequently used(U;q,@:PKok1p
pricing method.  Based on a calculation of incremental costs, this methodR!}N9@\ M}Z!Xb
considers the direct out-of-pocket expenses of producing and selling
products for export as a floor beneath which prices cannot be set without
incurring a loss.  There are important principles that should be followed
when pricing a product for export, summarized below.

COST FACTORS
   In calculating an export price, be sure to take into account all the Ac wsuK*F
cost factors for which you, the exporter, are liable.7@ })Bw6dXTM^V
   1.  Calculate direct materials and labor costs involved in producing B)f*D r[2sE z
the goods for export.
   2.  Calculate your factory overhead costs, prorating the amount of4s#nqp o&s8||M2Q
overhead chargeable to your proposed export order.
   3.  Deduct any charges not attributable to the export operation (i.e.,
domestic marketing costs, domestic legal expenses), especially if exportm'Q5R;}Em
sales represent only a small part of total sales.
   4.  Add in the other out-of-pocket expenses directly tied to the
export sales, such as:
   travel expenses     en-m(pm?
   catalogs, slide shows, video presentations FJ;CWva1m;^
   promotional materialk[:Dd&z T-zi
   export advertisingN$N0R}5@
   commissions
   transportation expenses)M\%K}iV!u8{
   packing materials
   legal expenses*
   office supplies*QF1@l3Yo
   patent and trademark fees*
   communications*
   taxes*5iN)o$r4oS;e9d
   rent*yQ qus8z
   insurance*wo5uN+tR0k
   interest*
   provision for bad debts
   market researchifh*M?
   credit checks0a4D?2p Z V,kx
   translation costs
   product modification
   consultant fees
   freight forwarder fees
|G7UG,G ED@*U
*These items will typically represent the cost of the total operation, so
be sure to prorate these to reflect only the cost of producing the goods
for export.`}#l'Lm W
   5.  Allow yourself a realistic price margin for unforeseen costs,
unavoidable risks, and simple mistakes that are common in any new0JBVX}1f9B
undertaking.
   6.  Also allow yourself a realistic profit or mark-up.
P?9pl6kn_?:@^
OTHER FACTORS TO CONSIDER
   Market Demand - As in the domestic market, product demand is the key
to setting prices in a foreign market.  What will the market bear for a
specific product or service?  What will the estimated consumer price for
your product be in each foreign market?  If your prices seem out of line,
try some simple product modifications to reduce the selling price, such as
simplification of technology or alteration of product size to conform to
local market norms.  Also keep in mind that currency valuations alter theF[weV@t|
affordability of goods.  A good pricing strategy should accommodate6B9z"d)TE1v8`
fluctuations in currency.
#eb[Q c7]M|0[u
   Competition - As in the domestic market, few exporters are free to set(Lw/}"|0TB
prices without carefully evaluating their competitor's pricing policies. (j xA6G%^!}
The situation is further complicated by the need to evaluate the;D#l.FS&GNZ(it"Y
competition's prices in each foreign market an exporter intends to enter. kZG E%U ^
In a foreign market that is serviced by many competitors, an exporter may
have little choice but to match the going price or even go below it to0b?%q%b|Kc&X
establish a market share.  If, however, the exporter's product or service
is new to a particular foreign market, it may be possible to set a higherX;a0d#C(c+I2ID
price than normally charged domestically.Q#T%j#b j SCY
^QIGk
QUOTE PREPARATION
   An Export Costing Worksheet that may guide you in preparing export]%UJ-k~)|'`
price quotations follows.
ZRdFw
-j/?T4xk,q3kib]v
EXPORT COSTING WORKSHEETcxD {l8g
Reference Information2h6W)T `bC b1r
5BK|4c|`p7e d h
1. Our Reference                2. Customer Reference2P8xAWL
Brx$N}|"w
Customer Information:
!rA;n rn}
3. Name                         5. Cable Address
4. Address                      6. Telex No.{"HU+zNj"S
                                 7. Fax No.'K.`$? @Y4C.`b#Y*Z-d

Product Information:                      SIC Code:{Zn9x8Nz5Q?6F5c)|

8. Product                      12. Dimensions ____ x____ x____ 9. No.How7C3]4s
of Units 13. Cubic Measure ____ (sq.in.) 10. Net Weight (unit) 14.
Total Measure } U^w7XE S
11. Gross Weight                15. H.S. No.$[j;}\ mS}
8fJ D'n(x
Product Charges:
E&nYOd(Hk`X
16. Price (or cost) per unit ______ x units _____Total__________
17. Profit (or markup)       X HAXN^
18. Sales Commissions
19. FOB FACTORY PRICE
l,X.qH8{"l~nq"D
Fees-Packing, Marking, Inland Freight:}_jpF pfA0zc W

20. Freight Forwarder
21. Financing Costs
22. Other charges
23. Export Packing
24. Labeling/Marking9F1Lo&D[6k
25. Inland Freight to
26. Other charges (identify)
27. FOB, PORT CITY PRICE (EXPORT PACKED)

Port Charges/Document3S5^!W{t

28. Unloading (heavy lift)
29. Terminal!X:\G(h{^pT2o ^D
30. Other (identify)
31. Consular Document (if required)
32. Certificate of Origin (if required)v9TzIZDh$O
33. Export License (if required)
34. FAS VESSEL (OR AIRPLANE) PRICE#@9|3~8j`m
gd)d$P^,DkC
Freight5r r2m_7K;e
_#nlDT6D(M3e&r1n
35. Based on ________  weight _________  measure3]pC:YM/fU
36. Ocean ___________  Air ____________y|O4nL-e2@ e&py
37. On Deck _________  Under Deck _____
38. Rate ____________  Minimum ________  Amount _________,q1B(X3zJ'Hu2g4e(?+uk

Insurance^w_b!TOh6n

39. Coverage required _________________
40. Basis ___________  Rate____________  Amount _________

41. CIF, PORT OF DESTINATION PRICE
| _9V-L Z
Snyk)CLD+I@
H+U2fAe^"xP8K^*G

WORKSHEET$YDkFw]g!X!Z

EXPORT PROGRAMS & SERVICES
   This worksheet helps you identify organizational resources that can
provide programs and services to assist you in developing yourEIxh1WPo!? ?
international business plan and increase your export sales.c/P8QWt

         ORGANIZATIONS \8nmgjkl
_________________________________________________________________SERVICES vQ4ca)y}}"\QNB
SBA    USDOC SBDC Trade University World
Office  Office          Assoc CommCollege Trade~e"_1i;WXz~
                                                Ctr#g#@'u\\8^0A'U
_________________________________________________________________WW#]~g,Q{
Readiness to &lIILj|!L
Export eE2qT,X"nO$l^9h
Assessmenti^ |4\.pG5u
_________________________________________________________________B3s'IA$}}i@
Market Research 3[+qLFq;a
Studies4qZz"tCc T'X \
_________________________________________________________________
CounselingX||j5t c:[3`!x'[
_________________________________________________________________g7Vu$ANu1c
Training Seminars9?'^)p3q"aRNQh
_________________________________________________________________
Education Programs
_________________________________________________________________
Publications
_________________________________________________________________
Export Guides
_________________________________________________________________N"ZvZNxST
DataBanksdH7S'n |e5KL
_________________________________________________________________1u8ZZ*C3U1c;s
Trade ShowsL@IQ~ d
_________________________________________________________________e]~s$K3[
Financing
_________________________________________________________________

2006-6-11 10:13 vip

Chapter 2 Identifying International Markets

To succeed in exporting, you must first identify the most profitablem&JMIC7ppN
international markets for your products or services.  Without proper"H.`OM9l8mnA+x@
guidance and assistance, however, this process can be time consuming and{ oK`t y(i$q
costly -- particularly for a small business.A%[BB'Ds \0ri7z
   The U.S. federal government, state governments, trade associations,
exporters' associations and foreign governments offer low-cost and easily~%N.sIo$yv
accessible resources to simplify and speed your foreign market research. |Y)Rl riaJaZ
This chapter describes those resources and how to use them.
gEs-Q_
FEDERAL GOVERNMENT RESOURCES
   Many government programs and staff are dedicated to helping you, the
small business owner, assess whether your product or service is ready to]8J8cxo.i1lr!i,l
compete in a foreign market.
rj5S6Nt#A;zW
The U.S. Small Business Administration
   Many new-to-export small firms have found the counseling servicesTLG\B/uXZ
provided by the SBA's Service Corps of Retired Executives (SCORE)
particularly helpful.  Through your local SBA District office, you can gain
access to more than 850 SCORE volunteers with experience in international@+L#k{W"`2Y P
trade.
(m;A;`j U{VF
   "Our SCORE counselor is really like a big brother to us and our}:x~H G:]:]@
company," says Jim Hadzicki, Vice-President of San Diego-based Revolution
Kites, a recreational kite manufacturer.  Exports now account for 24/WV H4AbE4V B%e0s} x
percent of their sales in just three years.  "I recently went on a trip to/P#~0zY/~{
Tokyo to line up a distributorship.  Our SCORE counselor helped me list our
objectives, what I was to do and ask about and even told me what gift I"Ek-^q}/K
should take to the Japanese representative," says Hadzicki.!WLrG|

   Two other SBA-sponsored programs are available to small businesses
needing management and export advice:  Small Business Development Centers
and Small Business Institutes affiliated with colleges and universities
throughout the United States:

   Small Business Development Centers (SBDCs) offer counseling, training L2_!fc3N
and research assistance on all aspects of small business management.  hAhp|uEi#FKA
   The Small Business Institute (SBI) program provides small business
owners with intensive management counselling from qualified business
students who are supervised by faculty.  SBIs provide advice on a wide
range of management challenges facing small businesses -- including finding(cDjLc
the best foreign markets for particular products  or services.
|,|Z:EW6Y%]/XW
The U.S. Department of Commerce
   The U.S. Department of Commerce's (DOC) International Trade
Administration (ITA) is a valuable source of advice and information.  Inf;E0U]Z H#Q
ITA offices throughout the country international trade specialists can help
you locate the best foreign markets for your products.  Oklahoma exporter
OK-1 Manufacturing Co. has found the foreign market research available
through the ITA extremely useful:k:t:g^Lp"fa:EM
k2H4W`UON
   "The Oklahoma District ITA office prepared a market research study to,ea W(lO6L
determine whether we should export our fitness accessory items to Japan,"
says Sherry Teigen, OK-1 Manufacturing Co. export manager.  Today, the,e)?)a#WPy
company exports to Japan in addition to 20 other countries.  Since it began4KCTL|g
exporting, the company staff has grown by 75 and Sherry's husband, OK-1's
President, Roger Teigen, won the 1991 SBA Exporter of the Year award.

   District Export Councils (DECs) are another useful ITA-sponsoredy+Z$uCEC&L
resource.  The 51 District Export Councils located around the United States\4dgo*kP M_
are comprised of 1,800 executives with experience in international trade
who volunteer to help small businesses export.  Council members come from Qq+k9|5@C tc3n
banks, manufacturing companies, law offices, trade associations, state and
local agencies and educational institutions.  They draw upon their v&@(Sp*qJ6?E)U0k
experience to encourage, educate, counsel and guide potential, new and
seasoned exporters in their individual marketing needs.

   The United States and Foreign Commercial Service (US&FCS) helps U.S.
firms compete more effectively in the global marketplace with trade4L9d _6` ]L6f u
specialists in 69 United States cities and 70 countries worldwide.  US&FCS!a'c2dn'Ox o9b3l8`k8CL)U
offices provide information on foreign markets, agent/distributor locationL8p$K5\B.d
services, trade leads and counseling on business opportunities, trade
barriers and prospects abroad.GGZac2F
a yg g j"pE/f%Y
The United States Department of Agriculture
   If you have an agricultural product, you should investigate the U.S. |L$? VPE6f,_C/\/` g
Department of Agriculture's (USDA) Foreign Agricultural Service (FAS). }u2NN"J$e
With posts in 80 embassies and consulates worldwide, the FAS can obtainp:A e*{ux.h\
specific overseas market information for your product.  The FAS alsoxB$V:Y} Lv.H/@
maintains sector specialists in the United States to monitor foreign{lHtl [
markets for specific U.S. agricultural products.w,kD~se _dV
   Most state commerce and economic development offices have6aaI@mtKu.O2J
international trade specialists to assist you.  Many states have trade8cpGBRP5U#o
offices in overseas markets.  Dial Tool and Manufacturing of Franklin Park,
Illinois, found the Illinois State office in Hong Kong very helpful:YR4Cbh
q!Xy/Ng(`&]
   After visiting the Illinois State office in Hong Kong, Dial Tool and
Manufacturing President Steve Pagliuzza reports that he was able to sign onS#kr^DR
sales reps for his company's metal stamping equipment: "My state office in1cHYgG9U7xr
Hong Kong gave me several names of potential reps.  We eventually signed
them on and are now successfully exporting to Asia, in addition to Europe,
Canada and Mexico. In four years, 15-20 percent of our sales now come from
exporting."

   Port Authorities are a wealth of export information. Although
traditionally associated with transportation services, many port
authorities around the country have expanded their services to provide
export training programs and foreign-marketing research assistance. For#G_U$ga
example, the New York-New Jersey Port Authority provides extensive services
to exporters including XPORT, a full-service export trading company.VQq&}BD.f a

PRIVATE SECTOR RESOURCESsTjC9gx-u

   In addition to government-supported resources, private sector'[.}3w_;KzUm
organizations can also provide invaluable assistance.9@r'a%h+Q1G6U }-|
K+gE#q_r$^:T4I|
Exporters' AssociationsaNO b?`xd
   World Trade Centers, import-export clubs and organizations such as the
American Association of Exporters and Importers and the Small Business d1O D"ngPdp
Exporter's Association can aid in your foreign market research.  h9pxv d:^

Trade Associations)Tp(aJt
   The National Federation of International Trade Associations lists over o/R0I o6l
150 organizations in the U.S. to help new-to-export small businesses enter
international markets.  Many of these associations maintain libraries,@)|\7vu5gu
databanks and established relationships with foreign governments to assist*A0oI4YF0SA
in your exporting efforts.&^X*R]I B*yS5b
   More than 5,000 trade and professional associations currently operatenPP9k,LJot2F
in the United States; many actively promote international trade activities
for their members.
   The Telecommunications Industry Association is just one association
which leads frequent overseas trade missions and monitors the pulse of
foreign market conditions around the globe.  Whatever your product or
service, a trade association probably exists that can help you obtain
information on domestic and foreign markets.
   Chambers of Commerce, particularly state chambers, or chambers located
in major industrial areas, often employ international trade specialists who
gather information on markets abroad.
2Bs9ND3_(u8w K8[
HOW TO GATHER FOREIGN MARKET RESEARCH

   Now that you know where to begin your research, you should next
identify the most profitable foreign markets for your products or services.^_@xR XHi.B)n
W Bo#tK0m?Hy5D
You will need to:
1SZ qI-y
   . classify your product; _w@Wdm*?f
   . find countries with the largest and fastest growing markets for
your product;
   . determine which foreign markets will be the most penetrable;
   . define and narrow those export markets you intend to pursue;
   . talk to U.S. customers doing business internationally;
   . research export efforts of U.S. competitors.m)Clm*c)hNh0b
a&?*f2r k'[
Classifying your product W-B-U b ?,@
   The Standard Industrial Classification (SIC) code is the system by
which the United States government classifies its goods and services.
Knowing the proper code for your product or service can be useful inL\@k'p2S;s
collecting and analyzing data available in the United States.4f [ |t}7vl0S
   Data originating from outside the United States -- or information
available from international organizations -- are organized under the.o^X7rw(Y
Standard International Trade Classification (SITC) system, which may assign
a different code to your product or service.
   Another method of classifying products for export is the Harmonized
System (HS).  Knowing the HS classification number, the SIC and the SITC
codes for your product is essential to obtaining domestic and international
trade and tariff information.  DOC and USDA trade specialists can assist in;CD9VUWRfx8l(r-{
identifying the codes for your products.  The United States Bureau of theT/Y^"B O5@v)p
Census (USBC) can help identify the HS number for your product.

Finding countries with the largest and fastest growing markets for your
productarf-_`0|0Y L\
   At this stage of your research, you should consider where your
domestic competitors are exporting.  Trade associations can often provide
data on where companies in a particular industry sector are exporting theirhtcs,dqLMM
products.  The three largest markets for U.S. products are Canada, Japan
and Mexico.  Yet these countries may not be the largest markets for your
product.
   Three key United States government databases can identify those
countries which represent significant export potential for your product:
SBA's Automated Trade Locator Assistance System (SBAtlas), Foreign Trade
Report FT925 and the U.S. Department of Commerce's National Trade Data Bank@X`x/E&OU
(NTDB).
   SBA's Automated Trade Locator Assistance System (SBAtlas) is offerede,eP"z1tk3B%H
only by the U.S. Small Business Administration and provides current market,d7},_(Z s0xC F
information to SBA clients on world markets suitable for their products and[U#c N[.{
services.  This valuable research tool supplies small business exporters
with information about where their products are being bought and sold and
which countries offer the largest markets.  The Country Reports detailocm6QW*y*d
products imported and exported by various foreign nations.  Data are
supplied by the DOC's USBC and member nations of the United Nations.  This
information can be obtained through a SCORE counselor at the SBA District*]bb-A5B${S1o)[
and Regional Offices and at SBDCs and SBIs.  This service is free to-b2yXlw&G@5^ rQ
requesting small businesses.d(@(U XDT
   Foreign Trade Report FT925 gives a monthly country-specific breakdown]$B7|$G(e#v0M$KKS7K
of imports and exports by SITC number.  Available by subscription from the
Government Printing Office, the FT925 can also be obtained through DOC ITAd-T8D&N JUgy/z
offices.Ui V7N6GB
   The National Trade Data Bank (NTDB) contains more than 100,000 U.S.
government documents on export promotion and international economic
information.  With the NTDB, you can conduct databank searches on country
and product information.  NTDB can be purchased by subscription and used
with a CD-ROM reader, or can be used at Federal libraries throughout the
United States.  DOC ITA offices will also conduct specific NTDB searches to
meet your foreign market research needs..vf|6d+J,X5T6ejp
   Once you learn which are the largest markets for your products,
determine which are the fastest growing markets.  Find out what demographic
patterns and cultural considerations will affect your market penetration.

   Several publications provide geographic and demographic statistical
information pertinent to your product: The World Factbook, produced by the
Central Intelligence Agency; World Population, published by DOC's USBC; The.N0M5};C"{c{] @"i!K
World Bank Atlas, available from the World Bank; and the International3bA*t:[,VIH
Trade Statistics Yearbook of the United Nations.  Volume Two of this U.N./i8zk/C FqO v ]%X
publication (available at many libraries) lists international demand forq+Wx GB#rG
commodities over a five-year period./JR8_8\.|-[&o5e

DETERMINING THE MOST PENETRABLE MARKETS!q V,}]^0RA(S h

   Once you have defined and narrowed a few prospective foreign markets0[z6qD!\F
for your product, you will need to examine them in detail.  At this stagea qJ8J9t?.j
you should ask the following questions:
nK_1t-P)Q }1YV
   . how does the quality of your product or service compare with that
of goods already available in your target foreign markets? O@XW:F*M1hvh
   . is your price competitive in the markets you are considering?9Fzg'r:|:r(i6_C
   . who are your major customers?2ZK d\$U`q Q+b

   Answering these questions may seem overwhelming at first, but manyg+}/h4y!vG6qe
resources are available to help you select which foreign markets are mosts)~EJe)x5[
conducive to selling your product.
   The DOC's ITA can link you with specific foreign markets.  ITA offices7|#~9jP-_@TU+E
are part of the US&FCS and communicate directly with FCS officers working
in United States Embassies worldwide.*Ojm%[m8R/E
   FCS staff and in-country market research firms produce in-depth
reports on selected products and industries that can answer many of your#JN(?.b9W u!}T
questions regarding foreign market penetration.
   One small business exporter who regularly uses foreign market+j^$pW$pcVm%v
information obtained through the DOC's US&FCS is Fabri-Quilt Inc. of North
Kansas City, Missouri. p$c&{E u*v u{
,Ctb(A5U6WtF
   According to Fabri-Quilt President Lionel Kunst, "When I decide to
enter a foreign market, the Commerce Department ITA office in Missouri
sends information on my company to the Foreign Commercial Service Officer
in the country where I want to export. They send me back information on
that particular country and even make appointments for me when I decide to6fi9T^E mjj$a
visit the market myself."  Of the product line Fabri-Quilt exports, 25 cx\NX;o4D-O0|A
percent of their sales can be attributed to exporting.

   You can also order a comparison shopping service report through ITA/c8V0B7_0fs
district offices.  The report is a low-cost way to conduct research without
having to leave the United States. /]j7t/k.|j
   SBA's and DOC's Export Legal Assistance Network (ELAN) provides new Wyi!T3e#hu9OI
exporters with answers to their initial legal questions.  Local attorneys
volunteer, on a one-time basis, to counsel small businesses to address
their export-related legal questions.  These attorneys can address
questions pertaining to contract negotiations, licensing, credit0GZ/p t-a@fo
collections procedures and documentation.  There is no charge for this
one-time service, available through SBA or DOC district offices.
   Trade Opportunities Program (TOPs) of the DOC can furnish U.S. smallbCUo*?e
businesses with trade leads from foreign companies that want to buy or
represent their products or services. These trade leads are available in
both electronic or printed form from the DOC.  Participating companies must ?y2\1R GG)q2k
pay a modest fee to gain access to this service.
   Other important issues about the target foreign markets you should[Aw*|u$I
explore are:
   . political risk considerations,
   . the cultural environment, and
   . whether any product modifications, such as packaging or
labelling, will make the product more "exportable."
af:u(syG1sE.k2`%I
   One U.S. poultry producer discovered it had to modify its product to
make it more palatable to Japanese consumers:
_G,wH`n]%j
   Atlanta-based Gold Kist Inc. found that, to be successful in Japan,
they needed to cut and package their chicken parts to meet Japanese"Ad T!aGj$C(y2v"|
consumer preferences.  That change required substantial modification in
Gold Kist's operations. The alteration paid off: Gold Kist's Don Sands
reports, "In 1988, we shipped 5.3 million pounds of poultry to Japan, 90yMJUxt
million in 1989 and 12 million in 1990."

   Identifying market-specific issues is easily accomplished by
contacting foreign government representatives in the United States.
Commercial posts of foreign governments located within embassies and
consulates can assist you in obtaining specific market and product@E"I,s.b/F mmgz*m
information.
   American Chambers of Commerce (AmChams) abroad can also be an%Ulh2\Kv%F
invaluable resource.  As affiliates of the United States Chamber of
Commerce, 61 AmChams, located in 55 countries, collect and disseminate-Te$S:qDb
extensive information on foreign markets.  While membership fees ared!wi!_a9W_6E
usually required, the small investment can be worth it for the information
received.1oqwE Z} n^B
   Another fundamental question to ask country-specific experts is whatKe&zz?%i
market barriers, such as tariffs or import restrictions (sometimes referred^H-iEz4m!G?
to as non-tariff barriers), exist for your product?  Specialists at U.S.
Trade Representative (USTR) should be consulted on trade barriers.byqq:H8J'n6Ce\
   Tariffs are taxes imposed on imported goods.  In many cases, tariffs
raise the price of imported goods to the level of domestic goods.  Often
tariffs become barriers to imported products because the amount of taxa4s/Q"_K,kC
imposed makes it impossible for exporters to profitably sell their products
in foreign markets.  $b0P&Y%j[)mE
   Non-tariff barriers are laws or regulations that a country enacts to
protect domestic industries against foreign competition.  Such non-tariff_y5V4MT5v
barriers may include subsidies for domestic goods, import quotas or K.c;mh:}"R H-`
regulations on import quality.D ]2H uh%f
   To determine the rate of duty, you will need to identify the
Harmonized Tariff section which corresponds to the product you wish toc~wXrPO
export.  Each country has its own schedule of duty rates corresponding to
the section of the Harmonized System of Tariff Nomenclature, I-XXII.`]3j}0`9zI,{

DEFINING WHICH MARKETS TO PURSUE
a$[/w\[:|q;nhh;}|,e
   Once you know the largest, fastest growing and most penetrable markets$S1Q,QJM
for your product or service, you must then define your export strategy.4r?^e D4G w9AF[g
   Do not choose too many markets.  For most small businesses, three4m&F+r+Xr^4Xms
foreign markets will be more than enough, initially.  You may want to test
one market and then move on to secondary markets as your "exportise"
develops.  Focusing on regional, geographic clusters of countries can also
be more cost effective than choosing markets scattered around the globe.  OK&{5d:Zp8LUv
   After you have identified the best export markets, your next step will
be to determine the best way to distribute your product abroad.  Chapter 3,JaMD4n%dT1W&z
"Market Entry," discusses distribution methods.

2006-6-11 10:13 vip

Chapter 3 Foreign Market Entry

Having determined the best international markets for your products,*pPz_ o/Ia/C4T
you now need to evaluate the most profitable way to get your products to
potential customers in these markets.
   There are several methods of foreign market entry including exporting,
licensing, joint venture and off-shore production.  The method you choose
will depend on a variety of factors including the nature of your particular+SjO+[(gh'W
product or service and the conditions for market penetration which exist in
the foreign target market. bc"X V!K!Y
   Exporting can be accomplished by selling your product or service
directly to a foreign firm, or indirectly, through the use of an exportwW-tu:cX3f{
intermediary, such as a commissioned agent, an export management or tradingvZp:k B
company.
   International joint ventures can be a very effective means of market
entry.  Joint ventures overseas are often accomplished by licensing orp]o}+JM7| Y
off-shore production.  Licensing involves a contractual agreement whereby
you assign the rights to distribute or manufacture your product or service*vJ&V"OWGV7dL
to a foreign company.  Off-shore production requires either setting up your
own facility or sub-contracting the manufacturing of your product to anh|Ik O
assembly operator.
   Licensing and off-shore production are discussed in Chapter 7,%QH EGbX;g:k
"Strategic Alliances and Foreign Investment Opportunities."
e1t"]Ge_
EXPORTING,mL6n8|;t+wOi
x;jg0s|$]0UDBdq
   Of the various methods of foreign market entry, exporting is most
commonly used by small businesses.  Start-up costs and risks are limited,
and profits can be realized early on.
   There are two basic ways to export: direct or indirect.  The direct
method requires your company to find a foreign buyer and then make all.n0N;f,cSg(a b[
arrangements for shipping your products overseas.  If this method seemsT/m(F5~zOI^v
beyond the scope of your business' in-house capabilities at this time, do
not abandon the idea of exporting.  Consider using an export intermediary: /IaO$C*lk9g

   American Cedar, Inc., a Hot Springs, Arkansas, producer of cedarv!R H/cBG;\
products reports that 30 percent of its product sales now comes fromP/G/R.s ~v
exporting: "We displayed our products at a trade show, and an export
management company found us.  They helped alleviate the hassles of
exporting directly.  Our products are now being distributed throughout the&o)K.QGs$X#KPn3D\
European Community from a distribution point in France," says American
Cedar President Julian McKinney.rv['nT9Fj
;u E5w+[u4z
INDIRECT EXPORTING-p9t*Y~#B,br

   Many small businesses like American Cedar have been exporting
indirectly by using an export intermediary.  There are several kinds of
export intermediaries you should consider.
'E;N S*i#]"j/j
Commissioned agents)sa,_B:s'sp
   Commissioned agents act as "brokers," linking your product or service
with a specific foreign buyer.  Generally, the agent or broker will notzb CV6_ ~
fulfill the orders, but rather will pass them to you for your acceptance. m:hX UJ ]g
However, they may assist, in some cases, with export logistics such as
packing, shipping and export documentation./J8D/C.]5~ \

Export Management Companies (EMCs)
   EMCs act as your "off-site" export department, representing your
product -- along with the products of other companies -- to prospective
overseas purchasers.  The management company looks for business on behalf5}xOr(r^q%Fyp
of your company and takes care of all aspects of the export transaction.
Hiring an EMC is often a viable option for smaller companies that lack the
time and expertise to break into international markets on their own.
   EMCs will often use the letterhead of your company, negotiate export&{oe8f,j2Q;ZwE D
contracts and then provide after-sales support.  EMCs may assist in
arranging export financing for the exporters but they do not generally{c3@!S9L
assure payment to the manufacturers.  Some of the specific functions an EMC
will perform include:
6FzLT-C
   . conducting market research to determine the bestforeign markets(D&[8{Tn2bdP&S%z
for your products;8h DUF@ [UOFQ
   . attending trade shows and promoting your productsoverseas;(}/mMX&Q(K
   . assessing proper distribution channels;
   . locating foreign representatives and/or distributors;
   . arranging export financing;wK v:dTTOve
   . handling export logistics, such as preparing invoices,arranging&FJc nD{|c"qT9fA8m
insurance, customs documentation, etc.; andx1k:zyWu K
   . advising on the legal aspects of exporting and othercompliance
matters dealing with domestic and foreign trade regulations.
"Pe1O wu
   EMCs usually operate on a commission basis, although some work on a}%Vg"w^ O;zj
retainer basis and some take title to the goods they sell, making a profit^ C E.h%[6JQP
on the markup.  It is becoming increasingly common for EMCs to take title
to goods.
HG7V]FE
Export Trading Companies (ETCs)#[3H!f3jG
   ETCs perform many of the functions of EMCs.  However, they tend to be
demand-driven and transaction-oriented, acting as an agent between the
buyer and seller.  Most trading companies source U.S. products for their$j6f|5r8ai:` o1Z
overseas buyers.  If you offer a product that is competitive and popularV5h.v]9c
with the ETC buyers, you are likely to get repeat business.  Most ETCs will m4]?X!R!M6RX
take title to your goods for export and will pay your company directly.
This arrangement practically eliminates the risks associated with exportingZ7Q+?)h!|W
for the manufacturer.

ETC Cooperatives
   ETC cooperatives are United States government-sanctioned co-ops of_:Z+N y%X6HW9KI+q8f
companies with similar products who seek to export and gain greater foreign0jw}p9G9U0GR
market share.  Many agricultural concerns have benefited from ETC!pg%Oni!Fe"?0]:d}
cooperative exporting, and many associations have sponsored ETC1T~*GjM.o
cooperatives for their member companies.  The National Machine Tool
Builders' Association, the Outdoor Power Equipment Institute and theyz T"Ho)gl0_
National Association of Energy Service Companies are a few examples of1s|%r6T}2h
associations with ETC co-ops.  Check with your particular trade association O+|-`0K I-d4H
for further information.

The Export Trading Company Act of 19826~7_&v!a9_{z
   This legislation encourages the use and formation of EMCs/ETCs by
changing the antitrust and banking environments under which these companies
operate.  The Act increases access to export financing by permitting bankK~W6|S M D;elTiq
holding companies to invest in ETCs and reduces restrictions on tradeg8V$Cx0Q,uZ
finance provided by financial institutions.  Under the Act, banks are
allowed to make equity investments in qualified ETCs.\6PS*V{'}

Foreign Trading Companies
   Some of the world's largest trading companies are located outside the
United States.  They can often be a source of export opportunity.  U.S. &%p#U$~T?;Q?[
Foreign Commercial Service (US&FCS) representatives in embassies around the8ukt(iy
world can tell you more about trading companies located in a given foreign,oH7s}\
market.7NV9AG&X0D.cP
5h6xb(`x
Exporting through an Intermediary -- Factors to Consider
   Working with an EMC/ETC makes sense for many small businesses.  The
right relationship, if structured properly, can bring enormous benefits to
the manufacturer, but no business relationship is without its potential
drawbacks.  The manufacturer should carefully weigh the pros and cons
before entering into a contract with an EMC/ETC.  Some advantages include:

[.\+NeuY'Ww0g
   . Your product gains exposure in international markets --with~3q(j7}[7gt2i)m
little or no commitment of staff and resources from your company.Z]6qZW2g
   . The EMC/ETC's years of experience and well-establishednetwork of2P h_Dww
contacts may help you to gain faster access to international markets thanoii6Pb*FQV
you could through establishing a relationship with a foreign-based partner.

   . Using an intermediary lowers or eliminates your exportstart-up0D2ZQ9o ] iU&z+J
costs, and, therefore, the risks associated with exporting.  You can
negotiate your contract with an EMC so that you pay nothing until the first
order is received.
   . Your intermediary will guide you through the exportprocessM0_,@TJ%f7Rk
step-by-step.  Over time, you will develop your own export skills. pN-gu,n}(}i

Some disadvantages of exporting through an intermediary include:  q:? }*Z,eU+E;w;F7o
   . You lose some control over the way in which yourproduct is3Un0BSuH$^Xx
marketed and serviced.  Your company's image and name are at stake.  Youa-g`+Om0jO
will want to incorporate any concerns you may have into your contract, and
you will want to monitor closely the activities and progress of your
intermediary.
   . You may lose part of your export-sales profit margin%b?IU)[D N7P.B
bydiscounting your price to an intermediary.  However, you may find that{:o&P1r~V
the economies of scale realized through increased production offset this%S'o7B,c"CBL;x
loss.!k%} Cg]g,tP"V?O
   . Using an intermediary can result in a higher pricebeing passed on]-Y3EAC8t
to the overseas buyer or end-user.  This may or may not affect yourx3a#dM({E4w\
competitive position in the market.  The issue of pricing should be&|J1m#i:u2Sc5R8N
addressed at the outset.
s&GJ@tJ
Export Merchants/Export Agents)C6?LV8N;x\V0B
   Export merchants and agents will purchase and then re-package products
for export, assuming all risks and selling to their own customers.  This?ot)_ Lt
export intermediary option should be considered carefully, as your company*nba1?T
could run the risk of losing control over your product's pricing and
marketing in overseas markets.
!MDqZ]Qk
Piggyback ExportingX$VmT?'fx
   Allowing another company, which already has an export distribution
system in place, to sell your company's product in addition to its own is'y Y1IXI:Lx zri&x
called "piggyback" exporting.  +q U^*DE e~
   Piggyback exporting has several advantages.  This arrangement can help
you gain immediate foreign market access.  Also, all the requisite%KC1fZ*zyd-jO
logistics associated with selling abroad are borne by the exporting
company.  Oklahoma-based DP Manufacturing's winches were attached to
another product and sold abroad by another company.  DP Manufacturing now]v0oN$Y#Ay
handles its own exports and reports that 15 percent of its sales comes from
international markets.

How to Find Export Intermediaries7GsR4e&va,X&_a
   Small businesses often report that intermediaries find them -- at
trade fairs and through trade journals where their products have been
advertised -- so it can often pay to get the word out that you areVQAm;w$iP#^ OI%k
interested in exporting.
   One way to begin your search for a U.S.-based export intermediary is%~7tJ1R&J
in the Yellow Pages of your local phone directory.  In just a few initialrYt!{+^v7trU_A
phone calls, you should be able to determine whether indirect exporting is
an option you want to pursue further.&XOU_]
   The National Association of Export Companies (NEXCO) and the National
Federation of Export Associations (NFEA) are two associations that can8a ~%h L4Oys9`
assist in your efforts to find export intermediaries. The Directory of
Leading Export Management Companies is another useful source (see Part II,5`^e0N j~4oW
The Exporter?s Directory).m b}#W!nFA
   DOC's Office of Export Trading Company Affairs (OETCA) can also assist
in providing information on how to locate ETCs and EMCs, as well as ETC
cooperatives in the U.S.  The office, under a joint public/private
partnership, compiles the Export Yellow Pages, which provides the names and
addresses of EMCs/ETCs, as well as other export service companies, such as
banks and freight forwarders.  Manufacturers, or producers, can also be
listed in the guide free of charge; 50,000 copies are distributed worldwidek?,C*C;E
annually.  Contact your local U.S. Department of Commerce district office0pyr&L|P(v$d
for information on being listed or for a free copy of the directory.
   Locating the best export intermediary to represent you overseas is
important.  Do your homework before signing an agreement.
%qC9w)C_U
DIRECT EXPORTING

   While indirect exporting offers many advantages, direct exporting also
has its rewards:  although initial outlays and the associated risks are
greater, so too can be the profits.
(T u;y c;vZ"}
   California exporter Bayley Suit, Inc. reports that 80 percent of its3u0N3i'N.S dh!p#R
sales come from exporting.  The company president says that "40 percent ofm,oy.Z&b4o
sales come from the Pacific Rim and 40 percent from the UK and Europe.  In
just a few years, exports have pushed our gross sales from $1 million to $4,N)O7{i)u+k_
million."(cA1]e3c@rM

   Direct exporting signals a commitment on the part of company
management to fully engage in international trade.  It may require that you
dedicate a staff person or even several personnel to support your export%Z ulX]Ck+p j
efforts, and company management may have to travel abroad frequently.
   Selling directly to an international buyer means that you will have to
handle the logistics of moving the goods overseas.  But, as the case of
Ekegard, Inc. reveals, the extra efforts can pay off:eJ"b`N2]
&@ zP$AN:xO2zx
   Using agents based in Pakistan and Thailand, Iowa-based Ekegard, Inc.
states that 80 percent of its sales now come from exporting -- quite an
achievement in just three years.  According to Ekegard President Janne
Ekstam, "Exporting helps to offset fluctuations in the United States3i?b/Pz9l6W
economy." 5z [ QSrtHP6R,p
cEP3h&S ii
Different Approaches to Direct Exporting+A#Q7lXQ/QX

Sales Representatives/Agents6SSA$YU"oF;K}]|N
   Like manufacturers' representatives in the United States,#VXqo%Oun
foreign-based representatives or "agents" work on a commission basis toj{|9Rk2TMm
locate buyers for your product.  Your representative most likely will
handle several complementary, but non-competing product lines.  An agent
is, generally, a representative with authority to make commitments on
behalf of your firm.  Be careful, therefore, about using the termsez4w'@4CTHLUx
interchangeably.  Your agreement should specify whether the agent/rep. has1J(s/tvC I
legal authority to obligate the firm.     F7knO4_-i"x

Distributors
   Foreign distributors, in comparison, purchase merchandise from the
U.S. company and re-sell it at a profit.  They maintain an inventory of(w4{| D/qE"WJ O9[q
your product, which allows the buyer to receive the goods quickly.
Distributors often provide after-sales service to the buyer.  U9Vc,_hH+I:j;zX
   Your agreement with any overseas business partner -- whether a
representative, agent or distributor --  should address whether the
arrangement is exclusive or non-exclusive, the territory to be covered, theN7L'^1mL5hbE
length of the association, and other issues.  (See Chapter Four, The Export XZ`!Wdb.@;YU
Transaction, for additional information on negotiating agent/distributor9NE(`^Q,sF7e
agreements.)
   Kansas-based Airparts Companies has been extremely successful using|6fB&pj*Z@;Si
overseas distributors:oZB5p"Cn@

   "We employ 1,200 distributors worldwide," says Marta E. Maxwell,Nm![q3P
president of Airparts Companies, Inc. of Wichita, Kansas.  With over $13!e }e&N:p Q$JL
million in sales and 38 employees, Maxwell attributes 70 percent of her:A+p r8L&|s
sales to exporting.  ;@v_7E w

   Finding overseas buyers for your products need not be more difficultA%fp mf{s0w @{
than locating a representative here in the United States.  It may require,
however, an investment of time and resources to travel to your target
market to meet face-to-face with prospective partners. One way to
identify those interested in your product is to tap the DOC's&l6v1D,S;?4bwOt
Agent/Distributor Service.  This program provides a customized search toz q9MvY{8PE
identify agents, distributors and representatives for United States
products based on the foreign companies' examination of the United States]0glJBw W#dn-F
product literature.

   "The Commerce Department Agent/Distributor Search located atR4N(F*X8v6?5?
distributor for us in India, and we've had a good working relationship for
three years," says Shirley Wright, a representative of the Wisconsin W#hS0Ry
biotechnology firm Promega. Promega derives more than 30 percent of its)m+h C5?uc
sales from exporting.]
DaA@ U0C
   Other sources of leads to find foreign agents and distributors are,sJ)X!Mlbf
trade associations, foreign chambers of commerce in the United States and-QZ"_Ywp:l;l x
American chambers of commerce located in foreign countries.KE:mA}F+J
   Many publications can be useful.  The Standard Handbook of IndustrialU.m1Zp] E{j0R
Distributors lists agents and distributors in more than 90 countries.  The#]B,ci3@
Manufacturers' Agents National Association also has a roster of agents insl{z#w$p^h
Europe (see Part II, The Exporter's Directory).EvGHb4{ d

Foreign government buying agentsCbW9g4C {
   Foreign government agencies or quasi-governmental agencies are oftenDg H+nmP0i]+g3F9g
responsible for procurement.  In some instances, countries require an!x~YVG
in-country agent to access these procurement opportunities.  This can oftenjM"[+B1H$pz)S1T8e
represent significant export potential for U.S. companies, particularly in
markets where U.S. technology and know-how are valued.  Foreign country
commercial attaches in the United States can provide you with the)P7h1e~6]}1{v
appropriate in-country procurement office.TQ!r\&`&g5b*\
Retail Sales
   If you produce consumer goods, you may be able to sell directly to a
foreign retailer.  You can either hire a sales representative to travel to
your target market with your product literature and samples and call on
retailers, or you can introduce your products to retailers through,~Qz(j@'AG pe:D
direct-mail campaigns.  The direct-marketing approach will save commission
fees and travel expenses.  You may want to combine trips to your target
markets with exploratory visits to retailers.  Such face-to-face meetings
will reinforce your direct marketing.

Direct Sales to End-User
   Your product line will determine whether direct sales to the end-user5eg:J&g6xEz
are a viable option for your company.  A manufacturer of medical equipment,
for example, may be able to sell directly to hospitals.  Other majorPgGOHS(^
end-users include foreign governments, schools, businesses and individual J:^|:YP&c
consumers.

HOW TO FIND BUYERS&oi,LI1_[;^c}#L
j,?7O7R\X&\
Advertise in Trade Journals
   Many small businesses report that foreign buyers often find them.  An
ad placed in a trade journal or a listing in the DOC's Commercial News USA
can often yield innumerable inquiries from abroad.  Commercial News USA is5V lL5_%Ay9o
a catalog-magazine featuring U.S. products and distributed to 125,000
business readers in over 140 countries around the world and to over 650,000
Economic Bulletin Board users in 18 countries.  Fees vary with the size of#@v?#lyS"m-yQ
the listing.  Many U.S. companies have had enormous success in locating1l0h9?QXG
buyers through this vehicle:
(IS lR;d1C4w)V~y
   "When overseas buyers contacted us we were thrilled," says Maryland's
Marine Enterprises Vice President Brenda Dandy, discussing the results of
a listing her company bought in Commercial News USA.  Exports now represent
20 percent of Marine Enterprises' sales. HSXvT8{oD-A)ud6zw

Participate in Catalog and Video/Catalog Exhibitions(M$a:k8D-oN%GbI
   Catalog and Video/Catalog exhibitions are another low-cost means of~-H0I.oI&Z W/G
advertising your product abroad.  Your products are introduced to potential
partners at major international trade shows -- and you never have to leaveEQU6d)rxGd4? _7n
the United States.  For a small fee, the US&FCS officers in embassies show
your catalogs or videos to interested agents, distributors and other
potential buyers.'I!?[KL;@g'j8B5?
   A number of private sector publications also offer U.S. companies the
opportunity to display their products in catalogs sent abroad.  A few
include Johnston International's Export Magazine, The Journal of Commerce$E ~wV@#xo1PM"G
and the Thomas Publishing Company's American Literature Review.
Wjc3|l0H&g
Pursue Trade Leads
   Rather than wait for potential foreign customers to contact you, Y9p"MbniW u:y
another option is to search out foreign companies looking for the
particular product you produce.  Trade leads from international companies
seeking to buy or represent U.S. products are gathered by US&FCS officers
worldwide and are distributed through the DOC's Economic Bulletin Board.
There is a nominal annual fee and a connect-time charge.  The leads alsoV$LT:FB#J`4_}
are published daily in The Journal of Commerce under the heading, "Trade|*]2u:z"W_a x
Opportunities Program" and in other commercial news outlets.8|4cT/m j|
   Another source of trade leads is the World Trade Centers (WTC)
Network, where you can advertise your product or service on an electronictVUL+G,fkjF;q
bulletin board transmitted globally.
   If your product is agricultural, the U.S. Department of Agriculturef]R+} d/L
(USDA) Foreign Agricultural Service (FAS) disseminates trade leads
collected by their 80 overseas offices. These leads may be accessed throughK8S7f'FK{;ArGT
the AgExport FAX polling system, the AgExport Trade Leads Bulletin, The
Journal of Commerce or on several electronic bulletin boards.4B wdg6Km)o0{p
v K8S4jUE$G2vX
Exhibit at Trade Shows
   Trade shows also are another means of locating foreign buyers.  DOC'sh.j4K%LS_.s
Foreign Buyer Program certifies a certain number of U.S. trade shows each
year.  Foreign buyers are actively recruited by DOC commercial officers,
and special services -- such as meeting areas and translators -- are
provided to encourage and facilitate private business discussions.
   International trade shows are another excellent way to market your
product abroad.  Many U.S. small businesses find that going to a foreignJbUowO&x
trade show once just is not enough:Vc x!`'~)A!hcI

   "You have to hang in there," said Allen-Edmonds Shoe Corporation9cZzh3F#cm
President John Stollenwerk.  "In the beginning, in many countries where we
displayed our products at foreign trade shows, we saw no results.  ButA3JRAi:hxJ6|
gradually people began to take our product, American made shoes, seriously.kc(Lu)~w

We market our shoes as `the world's finest.'  That's one way American/lj%r-S&h$Y {^f
companies can compete."  Twelve percent of Wisconsin-based Allen-Edmonds a-[$B,Zm-VP
sales are derived from exporting.

   Through a certification program DOC also supports about 807B%lwX*@0S
international fairs and exhibitions held in markets worldwide.  U.S.
exhibitors receive pre- and post-event assistance.  The USDA FAS sponsors)R}r Vn0BE2s
about 15 major shows overseas each year.
u1A,d+]lIV9R {$m9G
Participate in Trade Missions1FcqmZa
   Participating in overseas trade missions is yet another way to meet
foreign buyers.  Public/private trade missions are often organized
cooperatively by federal and state international trade agencies and trader vBu;QQ:T
associations.  Arrangements are handled for you so that the process ofK#L5jP.Oe(sL
meeting prospective partners or buyers is simplified.4x6u8r~:p},_sm
   Matchmaker Trade Delegations are DOC-sponsored trade missions to
select foreign markets.  Your company is matched carefully with potentialPS/gn]C:d
agents and distributors interested in your product.  Tennessee-based#pJ-om~#x[Z
Shaffield Industries, a futon manufacturer, reaped excellent returns as aH gZ X#jg&|$jO
result of a 1991 Matchmaker trade mission to Asia:

   "I was especially surprised at the high-level of appointments V@ i"rKy'["]C#]c-c
scheduled for us during the Matchmaker trade mission.  Each was a true
prospect," stated David Goff, comptroller for Shaffield Industries.  As aS@)H'[/_.M Q
result of the mission, his company negotiated the sale of three containersHU$oL,aA
of his product to South Korea and two containers to Taipei.1GCl@ j`

   Being properly prepared for the kinds of inquiries you might encounter hXZ4z~
on overseas trade missions is important.  The SBA offers pre-missiont6[+G}T5B8PU
training sessions through its district offices and the SCORE program.
Contact your local SBA office for a schedule of upcoming "How to
Participate Profitably in Trade Missions" seminars.v x {,_Z"Mm9OA

Contact Multilateral Development Banks
   In developing countries, large infrastructure projects are often%m7M,xg-e y
funded by multilateral development banks such as the World Bank, the
African, Asian, Inter-American Development Banks and the European Bank forM/C%trHo n~
Reconstruction and Development.Multilateral development bank (MDB) projects
often represent extensive opportunities for U.S. small businesses to
compete for project work.  DOC estimates that MDB projects could amount to
at least $15 billion dollars in export contracts for United States
businesses.
   One U.S. small business that successfully entered the international'va gwNR
marketplace by bidding on a World Bank project is DSI of Poestenkill, New_sm*U Tw%o3b8c^0L
York:

   "As a result of World Bank loans to the People's Republic of China,
DSI received over $1 million dollars in contracts for laboratory
equipment," reports DSI President Dave Ferguson.  Exports now account for4{|T2_#h
60-70 percent of DSI's business.

   Development bank projects can be an excellent way to start exporting.
Many U.S. small business exporters have benefited from large MDB projects
through subcontracting awards from larger corporations.aag? ny;kc%y0]
   A list of MDBs is included in Part II, The Exporter's Directory.  From D3dZ2Q5R'w
their Washington, D.C. headquarters, many MDBs hold monthly seminars to;o O5~6l4G-E
acquaint businesses with the MDB procurement process.  Additionally, the
DOC's Office of Major Projects can be of assistance in identifying
contracting and subcontracting opportunities.
#il.Q[r/H!m+N
QUALIFYING POTENTIAL BUYERS OR REPRESENTATIVES+y"^3_7K&E;Y.Wv
   Once you locate a potential foreign buyer or representative, the next
step is to qualify them by reputation and financial position.  First,9]9uK5x"yP+\5p7y
obtain as much information as possible from the company itself.  Here are
a few sample questions you will want to ask:
   . What is the company's history and what are the qualifications and$kTr/_R3Zf{
backgrounds of the principal officers?i8e&EsYb5_p:h)W
   . Does the company have adequate trained personnel, facilities,bBw!s3Ef'F
resources to devote to your business?ne&x+q4?}.j
   . What is their current sales volume?
   . What is the size of their inventory?
   . How will they market your product (retail, wholesale or direct)?
   . Which territories or areas of the country do they cover?
   . Do they have other U.S. or foreign clients?  Are any of these
clients your competitors?  It is important to obtain references from6?*Gs'Y-~(bU2Uq8g
several current clients.
   . What types of customers do they serve?
   . Do you publish a catalogue?
   . What is their sales force?2?"^|@C*Df:?

   When you have this background information and are comfortable about
proceeding, then obtain a credit report about their financial position. #rT-GtbMy&_
DOC's World Trade Data Reports (WTDRs), available from your local District&n}"t5f%e4o*W
ITA Office, are compiled by US&FCS officers.  A WTDR can usually provide an
in-depth profile of the prospective company you are investigating.w:PJ!PnQN
   There are also several commercial services for qualifying potential
partners, such as Dun & Bradstreet's Business Identification Service and
Graydon reports.  U.S. banks and their correspondent banks or branches4[I{EN#ign+L/F
overseas, and foreign banks located in the United States can provide
specific financial information.
   In this chapter we have discussed methods of market entry, how to find#Cx#{|,~/m
potential foreign buyers and representatives and how to qualify whom you
will be doing business with overseas.  Advance market research and
preparation is the best way for a small business to define a potential
export market.6mAJ3S7sb:MP
   The next question that needs to be explored involves how to accomplish BQ2iVpf'm \1I!q
the business of exporting -- that is, how the deal should be structured,
the topic of Chapter 4, "The Export Transaction."

2006-6-11 10:14 vip

Chapter 4 The Export Transaction

Pricing
   Pricing products to be competitive in international markets can be a
challenge; pricing that works in one market may be totally uncompetitive in
another.  Although there is no one formula for establishing prices for
exported products, there are a number of strategic and technical2LE5recne
considerations that you can make in order to determine an appropriate
pricing structure.
   A pricing strategy is a key component of your export marketing plan.
The selected pricing structure should be an integral part of your market'R*b^G ?Z u;v.f:KW-V
penetration objectives.  Your goals will vary depending on the targetiOV(IxN]p/V0{,`
overseas market.  Are you entering the market with a new or unique product?

Are you selling excess or obsolete products?  Can your product demand a
higher price because of brand recognition or superior quality?  Maybe youTWl5D.ee'n$x9j7b Z
are willing to reduce profits to gain market share for long-term growth.
Your pricing decisions will be affected by your company's goals.v"rv3Qk%P
   It is important to obtain as much information as possible on local
market prices as part of your market research.  Pricing information can be
collected in several ways.  One source is overseas distributors and agents7KK(DO@R
of similar products of equivalent quality.  When feasible, traveling to theA `Xq2J/h
country where your products will be sold provides an excellent opportunity
to gather pricing information.  U.S. Department of Commerce (DOC) can also
assist in determining appropriate prices through its Customized Sales b'[o#`Z:`iV)}
Survey.  a+Xy R~s+d)z%fh%R

   Joseph S. Brown III, President of Bruce Foods Corp., obtained pricing*i;pFhW0s0uw!d
information for food products sold in overseas markets using the Commercej$B];dZM/U aH
Department's Customized Sales Survey.  Although exporting since 1946, Brown"v)g-Y5{3VD%\4r*dHz
is constantly on the look-out for new markets for his products: "We now(i#l/Jg$}/[
export to 75 countries," the Louisiana business owner says.
5]7z.kl n(g;x ml}
   To compile the Customized Sales Survey, DOC's US&FCS researchzLe$t LzI
specialists in the target country interview importers, distributors,
retailers, wholesalers, end-users and local producers of comparable
products.  They also inspect similar products on the market.  Your
customized report, available for a fee, is usually completed within 45
days.g!{} `5qiJ

Marketing Your Product
   To successfully market a product in a domestic market, the"B0|"G3kP
manufacturer must take into consideration consumer preference, industry;I4K]oL9gL4z
standards, correct labelling and other consumer-driven considerations.  "v:U g$M5F#`
   When entering a foreign market, the manufacturer should consider the%p:[[b!yy2v fP7v
tastes and preferences in each market as part of marketing strategy. 2mIcY W5^ k~
Frequently, only a small change may be required to successfully market the'sj%R5L+H M{
product.  The color of the product, the design of the package, the size of
the product all may need adjustment.
   Consideration should be given to the product name (it may8jDU%R [{6|R y
inadvertently have a negative connotation in the local language), cultural
and/or religious connotations, appearance of container, compliance to
standards (different electrical power, metric dimensions and local product
regulations).Y/lr?t9^xT
   Another consideration when planning market strategy is understanding
ISO 9000.  The International Organization of Standardization (ISO) was
founded in 1946 by 25 national standardization organizations including the&I'C1[nWn&b,Jj-H["J
American National Standards Institute (ANSI).  Ninety countries now hold
membership in ISO.
   In 1987, the ISO issued ISO 9000, a series of five documents (ISO!RS9aw:r/{"T$b
9000, 9001, 9002, 9003 and 9004) that provide guidance on the selection and
implementation of an appropriate quality management program (system) for a].D;kE4[ MV!CWOh
supplier's operations.  The purpose of the ISO 9000 series is to document,
implement and demonstrate the quality assurance systems used by companiesj5v!A$^ O"z9iB
that supply goods and services internationally.  ISO standards are required~&Fx(C8~3l?3^6j
to be reviewed every five years.  Revised versions are expected to be
published in early 1994.  Information on the status of these revisions can
be obtained from:`3UOo)N(l

   The American Society for Quality Control (ASQC)t!oK0dkX WE5qV'd
   611 East Wisconsin Avenue6ms5Z9[2x4qU K
   Milwaukee, WI 53202
   Phone: 414/272-8575 or 800/248-1946/C7{aste
   FAX: 414/272-1734
*]'K5_c`q4q
   There are three ways for a manufacturer to prove compliance with the
requirements of one of the ISO 9000 standards. Manufacturers may evaluate
their quality system and self-declare the conformance of the system to one
of the ISO 9000 quality systems.  Second-party evaluations occur when the Hz1V7xV
buyer requires and conducts quality system evaluations of suppliers.  These
evaluations are mandatory only for companies wishing to become suppliers to
that buyer.  Third-party quality systems and evaluations and registrations
may be voluntary or mandatory and are conducted by persons or organizations
independent of both the supplier and the buyer.  Interpretations of an ISOR&P&N,M3?x5@)|N
9000 standard may not be consistent from one registrar to another.
   The supplier's quality system is registered, not an individuals4F}h_m}v
product.  Consequently, quality system registration does not imply product1|K9Q.Z?3a%v
conformity to any given set of requirements.  The demand for ISO 9000
registration in Europe and elsewhere seems to be coming primarily from theoLP"bxhy#Tv9I^U;o
marketplace as a contractual rather than a regulatory requirement.  As
conformity to the ISO 9000 standards becomes recognized and required by
foreign and domestic buyers and used by manufacturers as a competitive
marketing tool, the demand for ISO 9000 compliance is expected to increase
in non-regulated areas.  It is therefore critical for manufacturers towE5mJ1`fn&b
determine what are their buyers' requirements regarding ISO 9000
compliance.  Additional information on U.S., foreign and international
voluntary standards, government regulations and rules of certification for
nonagricultural products is available from:)Ha#F\}O D-G)H:oN7S

   National Center for Standards and Certification Information(NCSCI)*K/Z;`#WN%c|&Q.Z
   National Institute of Standards and Technology (NIST)
   TRF Building, Room A163
   Gaithersburg, MD 20899
   Phone: 301/975-4040k5N"~y)^~D
   FAX: 301/926-1559
@rxZ.~@(T
   For information on the EC 1992 Single Market program, copies of Single
Market regulations, background information on the EC or assistance
regarding specific EC trade opportunities or potential problems, contact:l_)]f r'PM*L} J7]
0~:yDn#]3n#N`?
   The Office of EC Affairs(v+i]$BXrn|(`g{} q
   International Trade Administration, Room 3036
   14th and Constitution Avenue, N.W.,z5jpQ!G
   Washington, D.C. 20230^8] `!q8] w{;d7v8z
   Phone: 202/482-5823
   FAX: 202/482-2155
3^?-` fw
Methods of International Pricing
   The cost-plus method of international pricing is based on your9B/OD`/W
domestic price plus exporting costs (documentation expenses, freightf+xs/tqa
charges, customs duties and international sales and promotional costs). Pd.`6fU^
Any costs not applicable, such as domestic marketing costs, are subtracted.
5Pwgv-K+pnj
The cost-plus method allows you to maintain your domestic profit margin
percentage, and thus to set a suitable price.  This method does not,ff|o2uuh*ebW
however, take into account local market conditions.  Your price may be too
high to compete in a foreign market.*k$EgyL
   Different marketing costs and/or modifications to the product couldiPp W(aD
change the cost basis dramatically, making the product either more or less&po~j'_6_ _A(_nRH
costly for export.  As a result, using the "marginal-cost" method providesd2XBP/qv
a more realistic means of determining true cost of producing your product"D-k)RWB${b#P3~+{2C4m
for export.i:Nf-`Un:x$B_
   To use the marginal-cost method, first determine the fixed costs of#C3v8^9{"sm6^!?
producing an additional unit for export.  Fixed costs include production
cost, overhead, administration and research and development.  A cost saving
may be realized if additional units of the product can be produced withoutin1H)eNh-gP
increasing the fixed costs.  There may also be instances where certain
fixed costs are covered by domestic production and do not need to be added1y;V)X;p`
to export expenses.k6U,b^G)ug Q
   Product modification expenses, dictated by the target market, are then
added to the production costs to establish a "floor price."  The floorAuoz7@Wq(q{
price serves as a threshold for the firm to know when it would incur a
loss.  Using the floor price as a base, variable export costs for the
product can be added.  Some of the variable costs will be one-time orR b n&v[)E
start-up expenses that should be discounted appropriately.  Variable7M`Fk4ZNAG
expenses include:k6HNgp7aI

Packaging
   Local regulations and customs may require special labelling,m2e*H/g9T1` F
translated instructions or different packaging to appeal to local tastes. h,|iMc
The selected mode of distribution may also require a particular kind of#V3QG.k{$@O
packaging. u~3DS0a*]]8U
8S;J,b})SD{:r
Foreign Market Research
   There may be fees for specialized services and publications used to3I1M?DU1H-y
gather market information. $Y@%SJQ)HD3g

Advertising and Marketing
   Firms selling directly into new markets will most likely be.D*C Md z"fa
responsible for the entire promotional effort.  The firm can incur high1CfLQ-x*HYW\
initial outlays to establish product recognition in the new market.  If an
agent, distributor or trading company is employed, they can handle
advertising and marketing as part of their contract.

Translation, Consulting and Legal Fees a!MK%VBl
   Product instructions, sales agreements and other documentation,^7{s7Cs*^
typically will need to be translated into the local language.  Expert!@'Kc7QSV
translation of product labeling and instructions will enhance local
marketing.  Although many sales agreements are standard, it is advisable to'Y`%W`j
have legal counsel review binding documents.$Gh~U;E|Q
R;Y,w!@}#z$Y!@B
Foreign Agent/Distributor Product Information and TrainingAgents and
distributors may require special training in order to effectively market
and service your products.  This is true even if the agent sells productsqP|9Cj^h}
similar to your firm's products.  Training will not only enable the agent
to better represent your company's interests but gain a better
understanding of your particular product.W(fOF%|X%BR*D
&MzeA;? ubv,W#S
After-Sales Service Costs }/f.zE7Ao8X
   Product warranties and service contracts will enhance your product's R-SVhtsw
image as a quality item.  An appropriate after sales service guarantee can#e:^?y8[
support your sales efforts in the new market.  Do not, however, promises6~?Ah'v'AI:V
service or warranties based on U.S. standards that you cannot deliver.

   After taking these expenses into account, insurance, freight, dutiesnF g7y{3WD6U0U
and a profit margin can be added to arrive at a customer price.  DependingV9v3X6b$T(B-w:W$`3}4V
on the market, currency fluctuations can affect significantly your locallyt%L-qjW2Le
based profit margin and the final price offered to the customer.  Forey|D9q8g\:?2} l
new-to-export companies, price products in U.S. dollars and request paymentA1V[7wl*d0\{ XZ
in dollars.  This is not an unusual request.xa)e'~ iC8gV _q

High-Price Option"Hg\Rl b-p%j.G
   This approach may be appropriate if your company is selling a newWJh&z:oI%F4n9C
product or if you are trying to position your product or service at the)g3E$R7g&b q+]
upper-end of the market.  Selecting this option may attract competition and(h s*M!zH
limit the market for your product while, at the same time, produce big
profit margins.(H@$PU w$Cs#` i@Q p
9~ v9B3Fc JhA8]9_
Moderate-Price Option
   This is a lower risk approach as contrasted to the high- or low-priceb\ @,Ly"n
option.  Here you should be able to match competitors, build a marketo-CM Z7L)|:Xh
position and produce reasonable profit margins.

Low-Price OptionMov7N,hF9MJ
   This approach may be relevant if you are trying to reduce inventory'r%EtM/y
and do not have a long term commitment to the market.  You will, no doubt,
impede competition but also produce low profit margins.3k#p T$@ c:H
   hl1i@'StL-P
   There may be no single strategy that is ideal for every company.
Often companies draw upon a mix of options for each market or product.
e'[4CkCFB/CD+@5v
Setting Terms of Sale
   Price Quotations!b6h6O$}#r[5x3d
   The pro-forma invoice is the most commonly used document to give priceBwYI6~Xw({:N'V'O
quotations to potential customers.  The quotation in a pro-forma invoice is
usually considered binding, although prices may change prior to final sale.b:Ev nQ fS*P/x'jnd
i[,^O#z.Y3QRy
To prepare the invoice, you should give a detailed description of thepoKhZQ.hV0Y`
product, an itemized list of charges and sale terms.  Prices should be
quoted in United States dollars to reduce foreign exchange risks.  The
invoice should also indicate the period during which the price quotation isG4\&TS(j_{4D
valid.*F!x-UL f8_g
   You should be familiar with the common terms of sale used in
international trade before preparing your pro-forma invoice.  International'SQ Cee2V/V
Commercial Terms (INCOTERMS) are the universally recognized terms used in
export and import contracts.  These terms refer to the rights and
obligations of each party:  who pays what costs; when title to goods is$HO1cdwT1cN
transferred; and where the goods should be delivered.  A complete list of
INCOTERMS published in the book Incoterms 1990 can be obtained from the
International Chamber of Commerce and should be a permanent part of your@Bp%{'QE6B(|
business library (see Part II, The Exporter's Directory).1w'CJ$a9Lm\K
o%a#q"fa(R.lOL`

l lMYt
PRO-FORMA INVOICE*
U@tVY5f7a`
SHIPPER:                               Reference No. RB20693D0pyh5~Im_
Smith and Jones Co.                   Date: July 18, 1993
5555 Railroad Ave. 6ZU5M\|{] B(u
New York, N.Y. 10001                   Customer P.O. No. 212-555-1234
                                    Terms of Payment:1sW` HRk9m0H
                                    Estimated Date of Shipment1F?[ {,p8X3F7D*Y@"\

C)a,shJf\q @K
SOLD TO:                               SHIP TO:[X1N*kn~,gT
Grupo Estevez, S.A. de C.V.          Juarez IndustrialeC$C']w Q]q%r~
Tamales No. 1 Piso 2                   454 Blvd. Cortez
12345 Cd. Polanco Mexico             11115 Mexico D.F. Mexico }9I\I-hJ
fpy!F D(n
VIA:  Aero Cortez@%[:\3r6woRK
KM)q @)A2~QU's
ITEM QUANTITY DESCRIPTION       UNIT PRICE TOTAL PRICE;i)TKm#aW
      100       Computer          US $50.00 US $5,000.00
               motherboards
                                       FOB factory 5,000.00       :N n!P"ZNaH5Hkv

                                       Inland dQ;kVi:a-A
                                       Freight A4|@ FJ
                                       Forwarder 4B8`IP8Kq&B3WZ
                                          fees          100.00       (\3c*{*Xha
                                       Air freight 1,200.00
               Five (5) [0v3M'Yy kn}
               sealed cartons       Insurance       20.00
               Gross weight:  v9\7N vheS%W8S0u
                  10 lbs.          C.I.F. Mexico  6,320.00


Authorized signature/Title
5p4dN[S*olW

   The above offering is based on current prices and is valid  60
days from invoice date.yKj2x9m/f
   *NOTE:  This pro-forma invoice is only a sample.  It is advisable tolq$U+~D
contact a freight forwarder in advance of shipping.

[/U(u kp
r|4H8X*p+D
NEGOTIATING SALES AND DISTRIBUTOR AGREEMENTS.r;p1Sa%k#Usv
LfQ,@`
Sales Contracts
   Knowing how to include INCOTERMS in a contract is important, but this
represents only one aspect of the sales agreement.  Legal rights and
obligations of the parties should be spelled out in a single document,
which can be incorporated into the final invoice.  Frequently, the terms-\"`$Y+gF.b&SZ} u
and conditions are contained on the back of the invoice.:Z+c0s*AJ5BL-i
   Some of the terms and conditions necessary in a written salesPr+s&tQ&n ^eNd
agreement include:
#dt)T~8a'[Gp
Delivery Terms -- Risk of Loss&@+C+Ps1C`5B
   A force majeure clause is standard in most agreements.  This clause
excuses the exporter from responsibility where a default in performance is
caused by events beyond the exporter's control, such as war, acts of God or
labor problems.t(dA8VbAE"u0GHi

Payment and Finance Terms
   In addition to defining the terms of payment, provisions should beW+t5WOL]
included for late payments, partial payments and remedies for non-payment.
The terms of payment should consider the use of letters of credit.
~x^v'X4Zmxo;p
Warranties
   Sales contracts generally describe the goods and their qualities,
workmanship and durability.  In some cases, the exporter is obligated by2sz9q)I m0`'f
the law in the country of import. The importer will require the exporter7X/a1DP%]Z$o.U#PmN(m
to warrant that the goods meet certain standards of construction andO0@I;sZ
performance.[J/dDE2p| F[F\

Acceptance of GoodsGO7b-|tTh#B8Q
   Frequently, the importer will insist upon the right to inspect the.UVS2O9H5U
goods upon delivery; if found defective, the importer can reject them and
refuse to pay.  However, the importer is still liable for RL;{8[ a6x
country-of-importation duties and other taxes.  The export documents shouldsy"?1k:PB;Nf ?i
reflect any such requirements.

Intellectual Property Rights
   Protection of the exporter's patents, trademarks or copyrights should
be assured in the agreement.  However, protection under the laws of theZ/}![7`&e$G6H
foreign country are not automatic, and you should not assume that your
product is protected.z hmN-mu

Taxes/~ ['z!{z)F&m*`
   The obligations of the parties for payment of taxes other than customs
duties should be defined in writing.2N yW0?^F'o
Z4s1zu1D
Dispute settlement
   It is advisable to specify how and where any disputes will be
resolved, as well as which nation's law would be applied.  Bear in mind2hmD\o nN`'f:s
that different countries have varying arbitration laws and systems which
may apply.
F%s8p{&N8m.}.j5|h
AGENT AND DISTRIBUTOR AGREEMENTS?7VM9l&h5pMzy
   If you choose to use an agent or distributor, it will be necessary top TFC{E(` l
develop a formal contractual agreement.  Agent and distributor agreements
spell out in more detail the issues mentioned above and define other6~mE6Z%V]R
aspects of the relationship between the parties to the agreement.
   In the contract it is important to:/\SLb%_"AA
   . specify the goods and/or services covered; eaeh5p
   . describe the agent or distributor's sales territory, and whether?1sxw`&P {;~7y
they will have exclusive or non-exclusive sales rights;
   . set the length of the term for which the agreement is applicable'Q.nH;mh)g(]H!B
and agree upon specified minimum sales volumes and objectives;
   . outline protection of intellectual property;
   . describe other types of obligations imposed on the parties,
violations of which would justify termination of the contract; and
   . list specific intellectual property rights granted to the agent!c].|5X9{*hF
or distributor.L8Mv'vZHz/wcT_
IBVYa*hx
   When negotiating and drafting contractual agreements, it is
recommended that you consult an attorney with experience in international gTTf5D s?m
trade and exporting.  Your company's business lawyer may be able to handle
your questions or refer you to an "export-oriented" attorney.  Your local$A k~%F7i0`:jn5wp
bar association may provide referral services, as well.  U;T^ |8u$rb9F*z]:f%u
   Under agreement with the Federal Bar Association and DOC, SBA sponsorsU&V6u1[3}i"Bd
the Export Legal Assistance Network (ELAN).  ELAN is a network of attorneys
located throughout the United States who specialize in international trade.

Your local SBA office can assist in locating an ELAN attorney who will
provide a free, initial legal consultation to discuss your export-related
questions. TF t0n H~$O(`cUE y
   As an initial introduction, however, you may want to review the z)W _4t_
information contained in International Business Practices, which covers thek s(\K)OC,P*n,k-p
legal aspects of doing business in over 100 countries.  Copies are6NF;g1Mm*I
available from US&FCS offices or from the Government Printing Office.P;j"t/k-VT
   Terms for financing export sales should be discussed during contract
negotiations.  While the U.S. seller will want to be paid as soon as
possible, the foreign buyer will want to delay payment as long as possible,'N PG+p2eg)q8TLr
preferably until after the goods are resold.  These two conflicting
objectives will factor into any negotiations on export financing.
   In addition to reaching a compromise on the method of payment, the
U.S. exporter must also be able to offer the foreign buyer favorableW8N}o:WB6Q|"k
financing terms -- otherwise the sale could be lost to a foreign competitor8_d']C,jg$g
with an equivalent product but better payment terms.#Vw-g~&YRu3R2r
   The final step in completing the export transaction is arranging for:P*f%\eh
payment, the subject of Chapter 5, "Export Financing."

2006-6-11 10:15 vip

Chapter 5 Export Financing

FINANCING EXPORT SALES
)Z"Z&L'w0n Qt^
   Few would disagree that small businesses must look overseas for profitU[(a?Ib#rC l NN
opportunities in the 1990s.  However, to compete successfully, small firms
must offer financing arrangements that are competitive with exporters ofyDG"|'C1b-kI6P
other nations.  This chapter will discuss three major influences on an?"n2c.C:C
exporter's ability to arrange competitive financing:A8a%b[~`
   . today's banking environmentoX b KHO_!T,{
   . how to approach a lender
   . methods of payment P[hR/P!}

UNDERSTANDING THE BANKING ENVIRONMENT

   In the United States, most small firms turn first to their local banks
for export finance assistance.  However, during the past decade many banks
have decided not to focus on export financing.  9oNXvn L
The banks' reasons for doing so have varied -- many cut theirla FP#y D.zz
international operations due to the huge losses they incurred on overseas
debt; others may have chosen to concentrate on more lucrative lines of5H&}z0ix*M5c
business, such as home equity loans or mergers and acquisitions.
   Consequently, during the 1980s export finance expertise in many U.S.
banks deteriorated.  Even today, most smaller banks do not retain any staff
with expertise in international trade.  This is not to say, however, that]@v/L4M6W+|*D#G
such help is unavailable -- only that small businesses must be persistent
and tenacious in their efforts to find it.  For example, if a small
business loan officer is unwilling to work with his or her bank's
international staff (or the bank is unwilling to work with a
correspondent), exporters should consider establishing a second banking
relationship or, if necessary, moving all their accounts to a more
aggressive lender.  Don't be afraid to shop."K#I(BqZV
   Given the difficulty most small business exporters face when seeking!v?1ujv!|4a m|
financing, it is imperative that financial arrangements be made in advance.
Finding a lender willing to consider such a request requires that the"x6j*d2@Fg8k
borrower ensure that the purpose of the loan makes sense for the business,
and that the request is a reasonable amount.  Prospective borrowers also#A*?](z;P5?w] S
should understand some key distinctions before beginning discussions withh Ha6lN i{l7v&l[
a lender.
*r9i f E;Y~ cu1?$C Xc"N
HOW TO APPROACH YOUR LENDER FOR EXPORT FINANCINGoj(qF'e4[

Venture Capitalists and Lendersv{Hz$r;JT`/w
   Before approaching a bank for financial assistance, small exportersPEr8auPFR fD
should understand the distinction between venture capitalists and lenders.
Venture capitalists invest in a business with the expectation that as the
business grows, their equity in the business will grow exponentially.  On9}nfKd5L
the other hand, lenders are not in the venture capital business -- theyK[k5^!@xaT;hR
make their money on the difference between the rate at which they borrow
money and the rate at which they lend to their customers.g{ @K}|%N
International Trade Services and Export Lending
   Small exporters should also understand the distinction between2R2k|x(cX)D)C
international trade services and international trade lending.  Although5v\dQ,x^9mWL
many banks offer international trade services, such as advising and
negotiating letters of credit, the banks' international divisions are not
authorized to lend money.  International lenders, on the other hand, have6vUW7G[(u~z nw\
the authority to make loans, as well as provide related services. TJ;o!u"f
Exporters should verify that the bank officer with whom they are dealing
has the authority to lend for an export transaction.
6poY-^I1J2D
Working Capital Financing and Trade Financing'A^Z Lv0W
   It is also important to note the difference between general working V4E"US }q h6d%y
capital financing and trade financing.  A small firm's ability to qualifyh3T!X Ot4x|
for general working capital financing depends on, among other things, the^O8?M"JU-_A"l
strength of its balance sheet and its prospects for generating sufficient
earnings over the life of a loan to repay it.  Trade finance, on the other
hand, generally refers to financing individual transactions (or a series of
like transactions).  In addition, trade finance loans are often5|,Z VxAw
self-liquidating -- that is, the lending bank stipulates that all sales7iY]}{&qo'A
proceeds are to be collected by it, and then applies the proceeds to payX_!p%V$y~ZR-hO
down the loan.  The remainder is credited to the account of the borrower. !@5oo#O;}?H"r
)PAO\ Y]0`pUF
   The self-liquidating feature of trade finance is critical to many
small, undercapitalized businesses.  Lenders who may otherwise have reached5d-G#uy^'DK
their lending limits for such businesses may nevertheless financeHhr4S-D/u
individual export sales, if the lenders are assured that the loan proceeds"k7x]y9@,i'z
will be used solely for pre-export production; and any export sale proceedsZY(d)T.?q2u7a-Z @C
will first be collected by them before the balance is passed on to thez.U;D0K3{e
exporter.  Given the extent of control lenders can exercise over suchy7e'`D1?9wPm!Sn
transactions and the existence of guaranteed payment mechanisms unique to
-- or established for -- international trade, trade finance can be less
risky for lenders than general working capital loans.
1d1A/}6|S8O!EU i
Pre-export, Accounts Receivable and Market Development Financing
   Exporters should understand the distinctions between the various types
of trade finance.  Most small businesses need pre-export financing to helpun1i]Iy0O,W)Tn8`p:D
with the expense of gearing up for a particular export sale.  Loan proceeds
are commonly used to pay for labor and materials or to acquire inventory&B+I*{:mc
for export sales.  Others may be interested in foreign accounts receivableNl(k%r'@6v
financing.  In that case, exporters can borrow from their banks an amount
based on the volume and quality of such accounts receivable.  Although
banks rarely lend 100 percent of the value of the accounts receivable, many
will advance up to 80 percent of the value of qualified accounts.  Foreign%xu\[p
credit insurance (such as Eximbank's Export Credit Insurance Program) is
often used to enhance the quality of such accounts.
   Financing for foreign market development activities, such as
participation in overseas trade missions or trade shows, is often difficult ZuHn1[-kt-DMY/I
for small businesses to arrange.  Most banks are reluctant to finance such
activities because, for many small firms, their ability to repay such loans
depends on their success in consummating sales while on a mission --N? o[ |F7|0U
prospects that in many cases are speculative.  Although difficult for many?k D5\4{Sp:t
small firms to do, the recommended source for financing such activities is dkvi/W_ t
through the working capital of the firm or, in certain cases, through theT%t8@Uh,g+sR
use of personal credit cards.
   Finally, take time to make sure your banker understands your business'^~$R*_dP3lt
and products.  Have a detailed export plan ready and, most important, be
able to clearly show how and when a loan will be repaid.'QP @8{J
\n(K-{STK p
METHODS USED TO FINANCE EXPORTS
)U4t6@+}8Ny&G/A
   A small business exporter's principal concern should be to ensure thatp|\2q5{
he or she will be paid in full and on time.  Foreign buyers may have
concerns as well, including uncertainty that the goods ordered will meet'f(rX']x!^P
the necessary specifications and arrive in a timely manner.  As a result,
it is imperative that the terms of payment be agreed upon in advance and in
a manner satisfactory to both parties.#]/VN@2wI\
   The payment method exporters use can significantly affect theI0rk%UY(OA2bN
financial risk of a particular export sale.  In general, the more generous ?c3An$t@-W
the sales terms are to a foreign buyer, the greater the risk to the
exporter.  The primary methods of payment for international transactions,c%eOANp'bYIc
ranked in order of most secure to the exporter to least secure, include: E0m/A1LL!K
v'O1]T:Bz8L_
   . payment in advance5{s-MB[KN
   . letters of credit
   . documentary collections (drafts)
   . consignment
   . open accounto5PJ)z"i:wWW2~
F'q/o!e"Yet y:_G\
Payment in advance
   Paying in advance is often too expensive and risky for foreign buyers. y3Y6t8Y{9Dr
Yet, this method of payment is not uncommon.  Requiring full payment in
advance may cause lost sales to a foreign (or even another domestic)
competitor who is able to offer more attractive payment terms.  In some
cases, however, where the manufacturing process is specialized, lengthy or(F?#j"`CkM-V R
capital-intensive, it may be reasonable to insist upon partial payment inA3e1Y%_xOQ
advance, or on progress payments.$l#HOLU&q$q`k4e*MM.?
q*]E,A9iS3`
Letters of Credit (LC)
   A letter of credit is an internationally recognized instrument issued
by a bank on behalf of its client, the purchaser.  The LC actually4?Pb:R#\(k*|
represents the bank's guarantee to pay the seller, provided the conditions
specified on it are fulfilled.  Of course, the purchaser pays its bank a
fee to render this service. J `hWs ]k }!A!I1v
   The rationale behind the use of an LC is reliance by the seller on the*M(A(f3e6YV-EB
credit worthiness of the bank, which is normally more reliable than that of%y!_%yKI i
the purchaser.  It is also easier to verify by the seller's bank.
Moreover, this vehicle can be structured to protect the purchaser becauseZi Y tD7kE
no payment obligation arises until the goods have been satisfactorily
delivered as promised._sMH%C'^
   The conditions of the LC are spelled out on the LC itself.  When theL/w,p E'a0b0P2~
conditions of delivery have been satisfied (usually by the documented,+\ i/e5i$W|
satisfactory and timely delivery of the goods), the purchaser's bank makes N!Z ^%V2h+W3i,K
the required payment directly to the seller's bank in accordance with the%wS{"MH rJ.a
terms of payment (in 15, 30, 60 or 90 days, whichever is specified).iB.t~;ko
   The greatest degree of protection is afforded to the seller when the
LC has been issued by the buyer's bank and confirmed by the seller's bank.
LCs may be utilized for one-time transactions, or they can cover
multi-shipments, depending upon what is agreed between the parties.  Also,q.WdJe W
make sure you can deliver within the terms of the LC.  It is suggested that
you review the details of such documentation with a bank that has LC {l!K/Q#sAp
experience.

LETTER OF CREDIT9h3D [ \5q9nh

                     BUYER    SELLERLa }O[d
   .  Agrees to buy product    .  Agrees to ship goods if LC
                                    is opened
.  Requests bank to issue LC    .  LC assures payment DE7KQHzVev
                                    if proper documents are presentedi7_`} p)b1?,~})@

                                 .  Ships goods and submits
                                    shipping documents to bank
                                    for payment
.  Verifies documents for
   compliance$kB['f2p q7y,U{"_

   .  Payment is made when    .  Payment received
documents received or accepted       immediately or upon*Z D[&]h vk.G
                                    maturity of accepted draft
H[ED_Y rg'B T&D
Documentary Collection (Drafts)*C4}Jqx*p
   Documentary collections involve the use of a draft, drawn by the
seller on the buyer, requiring the buyer to pay the face amount either onzzx6Mx0l5d
sight (sight draft) or on a specified date in the future (time draft).  The
draft is an unconditional order to make such payment in accordance with its
terms, which specify the documents needed before title to the goods will be
passed. vL"m]KgJ d
   Because title to the goods does not pass until the draft is paid ordclt"DSul
accepted, both the buyer and seller are protected.  However, if the buyer;U8U$r,i~W}Y
defaults on payment of the draft, the seller may have to pursue collection
through the courts (or possibly, by arbitration, if such had been agreed
upon between the parties).  The use of drafts involves a certain level of
risk; but they are less expensive for the purchaser than letters of credit.
e!zF#Ed

DOCUMENTARY COLLECTIONSO5i8~:hH:z5hu1]
4J*m5Y9J4`&k1_*E
                     BUYER    SELLER
K X+eq1bion2b
.  Agrees to buy products    .  Agrees to be paid via]4w0x8Ay7W"VO!t
                                    documentary collection H6V@K4l{

                                 .  Ships goods and submits`!xe4s)H
                                    shipping documents to bankM2jq1O2Wf;}D
                                    for collection or
                                    acceptance
)x)M o#zCXcF
.  Documents released to buyer    .  Seller receives payment at
against payment or acceptance    sight or upon acceptance IT\!dj1d|
L+H!|1IG#C-x%a
Consignment:_)o5j0`h&MJ
   When goods are sold subject to consignment, no money is received by9bdC'g G!Hj&^
the exporter until after the goods have been sold by the purchaser.  Title;n(j9L0Hdj} q
to the goods remains with the exporter until such time as all the purchase
conditions are satisfied.  As a practical matter, consignment is very
risky.  There is generally no way to predict how long it might take to sell
the goods; moreover, if they are never sold, the exporter would have to pay
the costs of recovering them from the foreign consignee.'u eP0_bAR \J;C
e%ea'_/K,|'dXKd/v6z_
Open account
   An open account transaction means that the goods are manufactured and
delivered before payment is required (for example, payment could be due 14,%@}uo@ p}0O
30, or 60 days following shipment or delivery).  In the United States,udL#Ly*{2XzY
sales are likely to be made on an open-account basis if the manufacturer
has been dealing with the buyer over a long period of time and has
established a secure working relationship.  In international businessH3{ u6@;z&yd#~
transactions, this method of payment cannot be used safely unless the buyer
is credit worthy and the country of destination is politically andt'FsGS(|-yA]
economically stable.  However, in certain instances it might be possible to7j]4L(czC
discount open accounts receivable with a factoring company or otherZqi:l1^5mvq
financial institution, referred to above.
   The following diagram assesses the relative strengths and weaknessesJ cm\l7{7X4YG+g
of each method of payment:
3?{@*C)l`:YC

METHOD    USUAL TIME    GOODS AVAILABLE    RISK TO    RISK TO       G5Vu f:Y v
                        OF PAYMENT       TO BUYER EXPORTERb^w-{q\f&~"P
                                                      IMPORTER
2]0xU;U;t
Cash in Before       After payment    None       Dependent3T v]^$[d$h;]"Y
Advance shipment                                     upon exportern+{#u[$m8_
                                                      shipping goodsN[V.Yp
Xd2R I8{9K
Letter    After ship- After payment    Very little
of       ment, when                      or none    Relies on
Credit    documents                      depending exporter toM%X\v6B
         complying                      on LC       ship goods_;^,GJo;S:k r*r
         with LC are                      terms8lu\ R/r+qW,E)o
         presented
7n] ['G$^N.Em0iK
Document-  On presenta- After payment    If draft un- Relies on
ary Col- tion of draft                   paid, must exporter to
lection to buyer                         dispose of ship goods9YP9J2J-j"B5U-^vZ W
Sight                                     goodsL$k4qFWf7G
Draft

Document-  On maturity Before payment    Relies on Almost none.b~{`\)jr
ary Col- of draft                         buyer to pay &fPwBoz0`zZ/l
lection                                     draft; no #T*|4D2Vk3hU]1Q g}
Time Draft                                  control of goodsHntyM1l]I

Consign- After sale    Before payment    High       Low
mentLURP/N"m j
d d3@Gk2WZ[:z
Open    After ship- Before payment    Relies on None&psXE`9Tz ~
Account ment, as                         buyer to pay
         agreed                         his account'F7xjf#`%O
[&m9|)N{Ig0QY
[ Mgu:][A
"cW2W\iT7A

,Q0| O2JR Z|*w[
PRIVATE SECTOR EXPORT FINANCING RESOURCES

Commercial Banks
   International trade transactions traditionally have been financed by;y;LB0D"e:u8TR
commercial banks.  Commercial banks can make loans for pre-export!b!f$wY#A
activities.  They can also help process letters of credit, drafts and other g Y ogD1A4Y
methods of payment discussed in this chapter.  Banks have also become
increasingly involved in making export loans backed by United States
government export loan guarantees.
   Many larger banks have international departments which can help with,N-e1@q^Ko }|
your company's particular export finance needs.  If your bank does not have
an international department, it probably has a correspondent relationship&d6CV}s
with a larger bank that can assist you.
$Gb a4J1j
Private Trade Finance Companies
   Private trade finance companies are becoming increasingly morees y3M+i;o
commonplace. They utilize a variety of financing techniques in return for:K*K*P prRS Z7H ?r&p
fees, commissions, participation in the transactions or combinations
thereof.  International trade associations, such as a District Export Sll^ x8z^-d
Council, can assist you in locating a private trade finance company in your
area.

Export Trading and Management Companies
   Both EMCs and ETCs provide varying ranges of export services,
including international market research and overseas marketing, insurance,
legal assistance, product design, transportation, foreign order processing,c n7m2W6^ISg
warehousing, overseas distribution, foreign exchange and even taking title
to a supplier's goods.  All of these services can leverage the limited[~u1_~#fN&A U
resources of small businesses.

Factoring Houses5R+f!P,\}z|*mi
   Factoring houses, also called factors, purchase export receivables onY2L5a6^xQ
a discounted basis.  Using factors can enable the exporter to receive
immediate payment for goods while at the same time alleviating the hassles
associated with overseas collections.l1Qm_WVrbz
   Factors purchase export receivables for a percentage fee at 2-7.D_FNp-tF E
percent below invoice value, depending on the market and type of buyer. i@Q%rN[%Eo Oq:}%E
The percentage rate will depend on whether the factor purchases the'Hf-S0KS:H(E)XN.T
receivables on a recourse or non-recourse basis.  In the case of a
non-recourse purchase, the exporter is not bound to repay the factoring Y$dnp`^e;h\
house if the foreign buyer defaults or other collection problems arise.
Therefore, the percentage charge will be greater with non-recourse)~X8W a-H$xKc d
purchases.

Forfaiting Houses:{ ^"g U-hp
   Similar to factoring, exporters relinquish their rights to future
payment in return for immediate cash.  Where a debt obligation exists6_-TD%BiM&HWy3]
between the parties, it is sold to a third party on a non-recourse basis,S#]5P$G!]ND:T
but is guaranteed by an intermediary bank.
   One U.S. exporter which used forfaiting found the benefits
substantial:

   Ed Lamb, President of Custom Die and Insert of Lafayette, Louisiana,&hN3TX p5?
was able to sell a 180-day letter of credit through a forfaiting house and
got paid 178 days sooner.  Forfaiting enabled Custom Die and Insert to"Lf3c'c9Vk
consummate a $2.3 million-dollar export order to the Middle East.
5p5?\}/u3o8H
GOVERNMENT EXPORT FINANCING RESOURCES
op%V m`}
   Because private sector financing providers will only assume limitediWP6cs;e7y
risk regarding foreign transactions, the U.S. government has become
increasingly involved in providing export financing assistance.  {aY4nD0?kyf
   U.S. government export financing assistance comes in the form of
guarantees made to U.S. commercial banks which in turn make the loans to
exporters.  Federal agencies, as well as certain state governments, have1UnRg\e@:JE
their own particular programs as noted below: 7T*hN[#Xs

U.S. Small Business Administration (SBA)
   SBA provides financial and business development assistance to help
small businesses develop export markets.  The SBA assists businesses in
obtaining the capital needed to explore, establish or expand international
markets.  SBA's export loans are available under SBA's guarantee program.
As a prospective applicant, you should request that your lender seek SBA4hgq%OB&?/Lc
participation, if the lender is unable or unwilling to make a direct loan.
   The financing staff of each SBA district and branch office administerst I{n*S-pi
the financial assistance programs.  You can contact the finance division of3PhR'E&n
your nearest SBA office for a list of participating lenders.  The businessx ms7h"s0sl
development staff of each SBA district and branch office can provide
counseling on how to request export financial assistance from a lender.*?y0A*Ywx]EI
   Borrowers can use different SBA loan programs and types of loan
guarantees simultaneously, as long as the total SBA-guaranteed portion does?!a@1kc6A'I
not exceed the agency's $750,000 statutory loan guarantee limit to any one.AB8x4ndM
borrower.  The lender may charge a maximum interest rate of 2.75 percentage
points above the New York prime interest rate, or 2.25 percentage points
above New York prime if the maturity is less than seven years.

Regular Business Loan Program
   The SBA can guarantee up to 90 percent of a bank loan up to $155,000. 7gYGv vY1L
For larger loans, the maximum guaranty is 85 percent up to $750,000.3XER%U`;{'F
   Small businesses that need money for fixed assets and for workingY:u"Z&N!o0t*y
capital may be eligible for the SBA's regular 7(a) business loan guarantee
program.  Loan guarantees for fixed-asset acquisition have a maximum
maturity of 25 years.  Guarantees for general purpose working capital loans9ht"n.q@#Z'iJT`
have a maximum maturity of seven years.  Export trading companies (ETCs)(CW(f]-r5lx(C"x
and export management companies (EMCs) also may qualify for the SBA's3q_#tfBQ6d
business loan guarantee program.(M"c*px'X V6B S
   To be eligible, the applicant's business generally must be operated
for profit and fall within size standards set by SBA. Loans cannot be madeq/TB.dQ^/Tl
to businesses involved in creation or distribution of ideas or opinions,
such as newspapers, magazines and academic schools.  Other types of)HjMdgc3V\O JN
ineligible borrowers include businesses engaged in speculation or:G3O9c1Ndx$h$e4TI
investment in rental real estate. TYdc4x9R5{

Export Revolving Line of Credit Programiw e+h(m#f9q0lDd2`hK
   The Export Revolving Line of Credit (ERLC) Program offers a credit
line up to 36 months.  Any number of withdrawals and repayments can be made
as long as they do not exceed the dollar limit of the credit line, and theb n0f,iB1y(FWo~
disbursements are made within the stated maturity period.  Loan maturities!j$f(E[&h\!pu,E
are generally for 12 months, with options to renew.
   Loans can be used to finance labor and materials for manufacturing or
wholesaling for export, to develop foreign markets or to finance foreign Nw5FT-wv
accounts receivable.  Foreign business travel and participation in trade%V(jp#n2f
shows are also among the eligible uses, but a regular 7(a) business loan
may be more appropriate for these purposes.
   Applicants must satisfy eligibility criteria established for all SBA
loans.  Also, the applicant must have been in business -- not necessarily
exporting -- for at least 12 months' continuous operation before filing an
application.  The 12-month requirement may be waived by the SBA regional
office, if the firm's management has sufficient export experience or enough{%YrF4J9wq
management ability to warrant an exception.:i8mP"k.b'g!_z$a;}3f
CG K8Z9k'Ad,Ir~
The International Trade Loan Programv2| S-s9B'zgURZ
   The International Trade Loan Program provides long-term financing to
help small businesses compete more effectively and to expand or developxt$U;^3JT9^c*q
export markets.5X)wp1Z|
   Loan maturities cannot exceed 25 years, excluding the working capital/VM(cin
portion of the financing. The SBA's guarantee cannot exceed 85 percent of sMB+bJ,h SR#^_
the loan amount.  The agency's maximum share for facilities or equipment
loans is $1 million, plus $250,000 for working capital. afM+a6M*UF1O~/H
   Proceeds may be used to purchase or upgrade facilities or equipment,&E sv9`;A-k
and to make other improvements that will be used within the U.S. to produce9t8Bz KI*T/D?
goods or services.0zk]w l(AU8O$p
   No debt payment is allowed.  Proceeds can be used to buy land and)uz;[9S:E
buildings; build new facilities; renovate, improve or expand existing
facilities; and purchase or recondition machinery, equipment and fixtures.
The working capital portion of the borrowing could be in the form of either
an ERLC or a portion of the term loan.
   Applicants must establish either of the following to meet eligibility}:mr#["EJj
requirements:
KU(t&GLo n&N*i
   . Loan proceeds will significantly expand existing export markets"ufOS%]7u'J
or develop new ones.
   . The applicant's business is adversely affected by import
competition.&U3v9d`Yr8@F9Zq0[/d
B/DYC/GCZ.F
Small Business Investment Company (SBIC) Financing
   A Small Business Investment Company (SBIC), approved and licensed by'j6t n3c8]
the SBA, may also provide equity or working capital exceeding the agency's'[n/H#N }nE
$750,000 statutory maximum.  SBICs can invest in export trading companies
in which banks have equity participation as long as other SBIC requirements
are met. F)SLuQ z+e;C%m h8_
)y_5N!g#nFO)d
Export-Import Bank of the United States (Eximbank)y~.g3E"\.ju
   Eximbank is an independent federal government agency responsible for
assisting the export financing of U.S. goods and services through a variety6pS9XqFc u w
of information service and insurance, loan and guarantee programs. +_1?&\7kH(L*T
Eximbank has undertaken a major effort to reach more small business
exporters with better financing facilities and services, to increase the8nK#? H0g;B:FNe
value of these facilities and services to the exporting community, and to7T8p9KS$\R JsM
increase the dollar amount of Eximbank's authorizations supporting small
business exports.
   Eximbank's export financing hotline provides information on the
availability and use of export credit insurance, guarantees, direct and
intermediary loans extended to finance the sale of U.S. goods and service
abroad.
   Briefing programs are offered by Eximbank to the small business,j&S+d} |X9T/o.d#G Kd
community.  The program includes regular seminars, group briefings and
individual discussions held both within the Bank and around the country.
   Export credit insurance programs reduce an exporter's risk and can be0t4vh|0pp][
obtained through an insurance broker or from Eximbank's Insurance Division.%w7N'E0t5B'Ek.d?
OW3m4[5z4n"y3\J
A wide range of policies is available to accommodate many different export
credit insurance needs.  Insurance coverage:0P8TBbF'Zq*bj(`
pQB$xq
   . protects the exporter against the failure of foreign buyers tod_5U#}y:^\Q6h
pay their credit obligations for commercial or political reasons;*}v*X"no8DSZA
   . encourages exporters to offer foreign buyers competitive terms of
payment;qf;C-OjQ
   . supports an exporter's prudent penetration of higher risk foreigng9{5d8V d _ by
markets; and
   . gives exporters and their banks greater financial flexibility in
handling overseas accounts receivable.
{7D#z4U/P1^4?!oC
   During the first two years, the new-to-export insurance policy offersD^jtJ(w[7O
a short-term (up to 180 days) insurance policy geared to meet thea~ai].z i^
particular credit requirements of smaller, less experienced exporters.
Under the policy, Eximbank assumes 95 percent of the commercial and 100
percent of the political risk involved in extending credit to the YL3?:i$Jw2n
exporter's overseas customers.  This policy frees the smaller exporter from
"first loss" commercial risk deductible provisions that are usually foundn%P:i gv7\T\
in regular insurance policies.  The special coverage is available to~o0qE$k(W;H1l9F|
companies which are just beginning to export, or have an average annual!?qt4w#zk
export credit sales volume of less than $2,000,000 for the past two years,
and meet the SBA definitions of small business. W BAVeJKB
   The umbrella policy also covers short-term receivables of companies
with only limited experience in export trade. These policies are available!b1\lI$s
to commercial lenders, state agencies, finance companies, export trading
and management companies, insurance brokers and similar agencies to insure
their clients' receivables.  Exporters are eligible if they have average
annual export credit sales of less than $2,000,000 for the past two yearsUZ.u2U\|.]+\
and meet the SBA definitions of small business.
,])[N:Oxk&@*Z9X|
Loan Programs QI/_WQ7H7MTW
   The Working Capital Loan Guarantee Program assists small businesses ineY~-A;Myy3l2e7k
obtaining crucial working capital to fund their export activities.  The
program guarantees 100 percent of the principal and interest on working
capital loans extended by commercial lenders to eligible U.S. exporters. H)Y1]~gG
The loan may be used for pre-export activities such as the purchase of
inventory, raw materials, the manufacture of a product or for marketing.;RM+n{1C2U/t
Eximbank requires the working capital loan to be secured with inventory of
exportable goods, accounts receivable or by other appropriate collateral.
.f'S%AO~*Z:b JK
Direct and Intermediary Loans
   Eximbank provide two types of loans, direct loans to foreign buyers of
U.S. exports and intermediary loans to fund responsible parties that extendM"A$sjz
loans to foreign buyers of U.S. capital and quasi-capital goods and related%a-L`C#F+v
services.  Both the loan and guarantee programs cover up to 85 percent ofCu$`4Loe2fK
the U.S. export value, with repayment terms of one year or more. ZSi`y1s%?|2oY
   Direct loans of any size and long-term loans to intermediaries are
offered at the lowest interest rate permitted under the Organization for,y ~uqs
Economic Cooperation and Development (OECD) arrangement for the market and
term.
   Medium-term intermediary loans are structured as "standby" loan
commitments.  Under this arrangement, the intermediary may borrow against
the remaining undisbursed loan at any time during the term of the
underlying debt obligation.  There is a prepayment fee if it is triggered}"H.J`;e``E)p:[8n
by prepayment of the foreign borrower.

Guarantee Programs
   Guarantees of the Eximbank provide repayment protection for private:A} oM'X1g$l6`
sector loans to credit worthy buyers of U.S. capital equipment and related(BA/h&Kfj7LF3i;N
services.  The guarantee is available alone or may be combined with an1g#Om3q[Dl
intermediary loan.h9g%@MQ1]ld
   Most guarantees provide comprehensive coverage of both political and)ti;DM K\+y
commercial risks but political risks only coverage is also available.  The
guarantee covers 100 percent of principal and interest.  In the event of a
default, the guaranteed lender must file a claim no less than 30 and no
more than 150 days after the default.  The claim will be paid within five
business days after receipt.  AeSD7xRe:i
   Customary repayment terms for capital goods in international trade
are:WF%SC~To
M+B+h:b+I(VOEla
   Contract Value          Maximum Term
   Less than $75,000       2 years
   $75,000 - $150,000    3 years)k,t:I/I(?k
   $150,000 - $300,000    4 years
   $300,000 or more       5-10 years, depending on the natureof the J2c*y\Q3g
sale and the OECDclassification of the buyers'country.AZY){2M)u Bc^
yZmz S2w,E"o
   Loans for projects and large product acquisitions, such as aircraft|^+`0iu5t*S
and capital-intensive machinery, are eligible for longer terms while lowernw;O H)f kx;?,A
unit value items such as automobiles and appliances receive shorter terms. x'Uc~,kHtcT
u aD9z.U
Commodity Credit Corporation (CCC)
   The United States Department of Agriculture's Commodity Credit
Corporation (CCC) operates Export Credit Guarantee Programs to provide
United States agricultural exporters or financial institutions a guarantee
that they will be repaid for short- and intermediate-term commercial exportL$t|x(H
financing to foreign buyers.  These programs protect against commercial or
noncommercial risk if the importer's bank fails to make payment.  Under one
program, the CCC will guarantee credit terms of up to 3 years and under
another, credit terms from 3 to 10 years are guaranteed.  (For more
details, see Part II, The Exporter's Directory.)1M,T8R*GG+s&H?g
X1e8`qQ#H2kOz
State Export Financing Programs
   A number of state-sponsored export financing and loan guarantee
programs are available.  Many cities and states have established.CNX2FF{ };Z&Qn
cooperative programs with the Eximbank and can provide specialized export
finance counseling.  Details of these programs are available through each
state department of commerce or trade office.&ZoY~p.p3e
   Arkansas, California, Delaware, Georgia, Indiana, Louisiana, Maine,.?+esX{wjD$`
Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, Nevada,{s(o^ Buk*q
North Carolina, Oklahoma, Pennsylvania, South Carolina, Texas, Utah,9L7I&@"t^
Virginia, Washington, and Wisconsin all provide direct or indirect export?s,?\Pv9f
financing assistance.
   Once an exporter determines the kind of export financing assistance to
be used and which payment method, the next step is to arrange for delivery
of the goods to the buyer's destination.  It is important to assess the
various transportation options available, the subject of Chapter 6,
"Transporting Goods Internationally."

2006-6-11 10:15 vip

Chapter 6 Transporting Goods Internationally

Now that financing has been arranged, steps must be taken to ensure[5nlC!D?Q#t {mI
that the goods for export are packed and shipped properly to reach their[Y-X8v3|0s L
destination.  When transporting goods internationally, proper documentation
and correct packaging are critical to the export process.
   One of the main differences between selling domestically and exporting
is the documentation required.  Providing proper documentation with your
shipments is essential, if the goods are to arrive safely and on time.3Ld:f1S{|I
   Although the paperwork involved in exporting may be more burdensomebFw,L;V+V1Hd
and costly than that required for domestic sales, it should