International commerce is an essential part of the economy of Washington State with one in every three jobs directly supported by trade. As the fourth largest exporting state, behind California, Texas, and New York, Washington is perhaps the most trade-oriented state in the US. In 2011 the United States exported $2,103.4 billion worth of merchandise to 200 countries, with $64.6 billion in products from the state of Washington.
The top exports for the US and Washington for 2011 are listed below.
|Top US Exports||WA State Exports|
Contrary to popular belief, large companies are not the only businesses able to enter and profit from these markets. Most US Exporters/Importers are small and medium sized companies. If you are a small business or interested in starting a business, the SBA (Small Business Administration) is a most promising reference.
One should be sure to conduct extensive research and be well aware of all of the issues involved before entering a business venture. Below is an outline of a basic Export Plan to serve as a guide.
Creating an Export Plan
Step 1 – Assessing Your Readiness
Before choosing to export, you must evaluate the readiness of your company along with the readiness of your product.
In determining the readiness of your company, there are several aspects to keep in mind.
- MOTIVATIONAL FACTORS
- General long term expansion without necessarily immediate returns
- What exactly are your goals: in the near future, in five years?
- Enhancing competitiveness
- Exploit unique technology and enterprise
- Improve return on investment
- Diversify revenues
- Expand company awareness
- Reduction in dependency on U.S market
- General long term expansion without necessarily immediate returns
- ORGANIZATIONAL FACTORS
- Commitment of the management team
- Seek assistance from experts with export/import knowledge and skills
- Identify a team of international consultants and advisors such as an accountant, lawyer, banker and international freight forwarder
- Funding support
- Personal enterprise and commitment
- Production capabilities
- Exporting goals
- Commitment of the management team
Is Your Company Ready to Handle the Costs and Benefits of Exporting Your Product?
|Benefits of Exporting||Costs of Exporting|
|Domestic competitiveness||New promotional expenses|
|Greater sales & profits||Short-term costs vs. long-term gains|
|Expand company awareness||Additional administrative costs|
|Diversify revenues||Difficulty in payment collection|
|Reduce dependency on US market||Cultural & political risks|
|Enhance production capacity||Travel costs|
Even if your company is ready to export, you need to assess whether your product is also ready. The readiness of your product can be evaluated on:
- Success in the domestic market
- Will your product require modifications for success in the international market?
- Have you identified your target market?
- Does the product require extensive training to use?
- Will support be needed after the sale?
- Is your product unique or differentiated?
- Will a special U.S license be required to export the product?
Step 2 – Market Research
Why is market research important to your company’s export success?
- Identify where your product is most likely to sell
- Specify market segments
- Determine both domestic and international competitors
- Establish a fair market price for your product
The first step in market research is to classify the product. Knowing which classification codes represent your product can help you track where similar products are being shipped, quantities shipped, and the revenue generated off the shipments. It can help you gather relevant demographic and economic information about potential markets.
There are 4 classification systems commonly used:
- Harmonized System (HS) and the Schedule B
- Standard International Trade Classification (SITC) system
- Standard Industrial Classification (SIC) system, which is being replaced by,
- North American Industry Classification System (NAICS)
After finding your classification codes, you need to identify your potential market.
Think about these ideas:
- How does your product or service compare with competition in the foreign market?
- Is your price competitive in the markets you’re considering? Reflect on the monetary exchange rate, and current economic conditions in the markets you are pondering.
- Who are your major customers? Exporters with unique products that have not been classified or sold previously will want to develop a customer profile to determine the most likely audience that will buy his or her products or services.
How to Identify Which Markets are Most Penetrable
- Research political and economic situations in the country of interest
- Identify trade barriers (Tariff and Non-Tariff)
- Where is the product currently selling well?
- Who are the competitors?
- Does your product need to be modified?
Now narrow down your list of potential target markets to 2 or 3 and consider the risks and characteristics associated with each market. Consider:
- Market Size
- Market Growth
- Market Accessibility
- Economic Stability
- Political Climate
- Cultural Climate
- Environmental Factors
- Geographical Factors
There are numerous books and publications available for research. US Embassies and the internet are reliable resources. The CIA website (www.cia.gov) can be useful in finding country information. Other local Washington organizations such as OTED (Organization for Trade and Economic Development,) the Export Assistance Center and the US Department of Commerce all have valuable information and links.
Step 3 – Develop an Export Strategy
Will your company choose to export directly or indirectly? There are advantages to each option and certain countries may not give you a choice.
- Open an export sales department or establish a close relationship with your buyer
- Use an export manager
- You cannot sell directly to the end-user; you must use a local agent or representative in the Middle East, Central America, and in some Asian countries.
There are a variety of intermediaries available to your company:
- Manufacturer’s Representatives or Sales Agents
- Foreign Distributors/Importers
- Overseas Retailers
- Central Trade Offices and Trading Companies
- Sale by the exporter through an intermediary may be a better alternative to the complex tasks and risks involved in direct exporting
- Your company can work with domestic and overseas intermediaries:
- DOMESTIC INTERMEDIARIES –
- An Export Management Company (EMC) functions as an “off-site” export sales department, representing your product along with various non-competitive manufacturers.
- Export Trading Companies (ETC) are very similar to EMCs. The ETC is more likely to take title to the product and pay you directly, but like an EMC, they can also act as an export department. Usually, there is less responsibility on the part of the ETC towards the supplier and they tend to be demand driven and transaction oriented
- OVERSEAS INTERMEDIARIES –
- Consider implications of licensing, contracting, and franchising
- Protect trademarks and intellectual property by securing proper patent and trademark registration before signing a licensing contract.
- Make sure agreements are not in violation of the host country’s existing trade/product regulations or restrictions.
- Don’t wind up as competitor to your own product by having your own design or know-how licensed in a foreign marketplace where you are already exporting.
- JOINT VENTURES –
- Joint ventures bring together two companies from different countries with similar goals to establish a market entry and a distribution network. Each partner brings specialized skills that make significant contributions to manufacturing and distribution capabilities.
- STRATEGIC ALLIANCES –
- An alliance is a form of presence overseas that represents more than a simple buy/sell agreement. It has a well structured purpose, shared management strategies and financial goal. Companies that form strategic alliances do not necessarily create an independent business organization.
- SUBSIDARIES –
- Guarantee control over all decisions involving marketing and production. Their technologies, patents, trademarks, and know-how have the maximum protection available under the host country’s laws.
- Subsidiaries are treated the same as host company operations in terms of benefits, regulations and taxes. There are favored places in the world to consider for jointly or wholly owned subsidiaries and manufacturing facilities. Factors to consider range from low labor costs and government regulation to tax and economic incentives.
- DOMESTIC INTERMEDIARIES –
Should I use an EMC/ETC?
|Faster foreign market entry in terms of first recorded sales.||Loss of control of the export strategies and quality control of after-sales service.|
|Better focus on exporting, as most firms give priority to their domestic problems.||Competition from the EMCs/ETCs other products.|
|Lower out-of-pocket expenses.||Reluctance of some foreign buyers to deal with a third party intermediary.|
|Opportunity to study the methods and potential of exporting.||Added costs and higher selling prices because of gross profit margin requirements of the EMC/ETC, unless the economies of scale can be used to off-set this factor.|
|Expertise in dealing with the details of exporting, as well as its strategies.||Possibility of the EMC/ETC neglecting the client’s product in favor of other products that might be more profitable and easier to sell.|
Step 4 – Trade Leads
Trade leads are available from a variety of government, public and private databases, programs, and electronic resources, such as Promotion Service Centers, and the Trade Information Center of the Department of Commerce (DOC) at 1-800-USA-TRADE.
You also need to consider if you need an overseas representative.
Steps to take:
Does your company need an agent or a distributor?
|Use an Agent If…||Use a Distributor If…|
|It is the accepted distribution method
in the country you are exporting to.
|It is the accepted distribution method in the country to which you are exporting|
|You do not need to maintain inventory in the foreign country||You need to maintain inventory on the foreign country|
|You want to maintain direct control of the sales of your products overseas|
|You intend to benefit from corporate identity|
Step 5 – Promoting Your Product
Promoting your product begins as soon as you make your first overseas contact and introduce them to your company and your product. Your choice of representative and negotiation further establishes your image.
When advertising, first, you must decide who will control the advertising campaign, you or your overseas representative. Second, you must evaluate and implement the most appropriate methods.
Your campaign control can be either centralized or decentralized. Each option has its own benefits.
Step 6 – Prepare Price Quotations
An export transaction starts with a price quotation on your product. Potential international customers will request such a quote from you and will consider it legally-binding.
Some things to account for:
- The market’s ability to pay
- The consumer’s needs and desires
Here is one way to price your product:
+ Unexpected variable expenses:
time cyle of export sales
change in supplies or components
complications in filling orders
risk coverage in case of payment default
extra sales and administrative costs
+ Profit Margin (usually 12-15%, depending on financing and credit terms)
= Floor Price
Step 7 – Delivering Your Product
Consider using a broker/freight forwarder to help you move your product. A good specialist will save you money. They can act as your agent to move your cargo from origin to destination. Many smaller sized export companies, in fact, consider the freight forwarder the external shipping department to the company, essentially their travel agent for all export products.
The broker/forwarder can act as an adviser, strategist, even freight carrier and can arrange for payment on goods. Who you choose as your freight forwarder, therefore, is an important decision to make, one that can affect the profit margin of your foreign sales. Contact the World Trade Center Tacoma at 253-396-1022 for a local referral.
Step 8 – Follow Up
This final step is not to be disregarded. Once the shipment has been completed, papers have been cleared and payment has been received you should conduct a follow up on customer satisfaction. This may be in the form of a survey, interview etc. The purpose is to reevaluate your business service.
- How prompt and efficient are you in regards to delivery?
- Where is there a need for improvement in your business?
- What can you learn from your competitors?
*Sourced from WTC Tacoma expertise and, in part, TradePort’s Trade Tutorials
Useful Resources for Exporters
- US Trade and Development Agency
- US Commercial Service
- US Government Export Portal
- Small Business Exporters Association
- Bureau of Industry and Security
- Seattle Export Assistance
- Trade Information Center
- Trade Compliance Center
- All-American Small Business Exporters Association
- A Basic Guide to Exporting (Unz & Co)
- Export Readiness Assessment Sponsored by Pennsylvania’s Southern Alleghenies Planning and Development Commission
For information and regulations on shipment requirements, please see:
US Customs Service
Features importing and exporting rules and regulations, traveler information, contracts and procurement, and an online service for reporting smuggling and customs threats.
Excellent exporting advice and a list of requirements for shipment.
The Global Entrepreneur Taking Your Business International
by James F. Foley
Published 1999 by Dearborn
Financial Publishing, Inc.
403 pages; paperback.
Retails for $29.95
Kiss, Bow or Shake Hands
by Terri Morrison, Wayne A Conaway, & George A Borden, Ph.D.
Published 1994 by Adams Media Corporation
438 pages: paperback.
Retails for $19.95