Why Exporting your product is a good idea
Expanding your bottom line and selling to customers abroad is likely part of your business strategy or on your roadmap. It is no wonder why, according to a study by the Institute for International Economics, U.S. companies that export not only grow faster, but are nearly 8.5 percent less likely to go out of business than non-exporting companies.
Our current environment under the pandemic reminds us how vulnerable we can be and although we plan and strategize to maintain a competitive edge and continue growth, there are always outside factors that can disrupt our business and may need to find alternate plans or rely on what you may already have in place. There is no question that exporting your products to foreign markets open the door to much more opportunity. The U.S. Department of Commerce notes that more than 95% of the world’s consumers are outside the United States. The benefits and potential are all there. Consider some of these reasons to look at or reinforce your export program.
- Competitive edge. By expanding the potential consumer base for your product to other countries, it can make you more competitive. There is demand for American made products. The United States is known for high quality and innovative products with exceptional customer service and trustworthy business practices in general. Remember, if your competitors are doing it, they have an advantage over you and maybe a reason to look at exporting.
- Faster growth and profits. As stated previously, a business that exports is less likely to go out of business. This is in part because of added export sales. Other studies have shown that exporters tend to grow 22 percent faster than those that do not. More sales tend to bring more profits that create more jobs and benefit employees as well with better paying jobs.
- Market diversity. Think about the current global pandemic. Although this is a very unique situation where it is not limited to one or few countries, in reality the entire world has been hit and has affected just about all business globally. However, with your products being made available globally, the consumer base is much larger, and areas not affected as badly as others will continue to purchase rather than limiting yourself to just the United States consumers, who is amongst the hardest hit and could be affecting domestic sales. Under normal business conditions, a bad economy in one region could be offset by another’s thriving consumer and economy base.
- Production costs and seasonality. Speaking of fluctuations in the market, let’s take a look at other factors affecting your products. Beginning with production costs. It is a fact that it costs less per unit as you produce more. With a foreign distribution of your products, that will help keep the costs lower overall and compete better domestically. What about products that are sold for different seasons, such as ski equipment (both water and snow), outdoor activities such as camping, climbing, hiking tend to be seasonal as well. There are many others to note, but expanding to global markets will also allow you to sell that product when not in season in the U.S. but other parts of the world experiencing the season that adapts to your products.
- Exploring your markets. Lastly, although many more benefits exist, let’s talk about your foreign markets. Travel the world to meet and close business with your foreign partners. Who would not want to take advantage of these benefits that can turn work into fun by learning and exploring other cultures and taking in all that the rest of the world has to offer?
This all sounds great and for companies already exporting may have already seen the benefits. So why do more companies not get on board and start exporting? More often there is uncertainty to jump into the unknown, for example what are the limitations and regulations for exporting a product, do I have the right team in place, what is this going to cost, what is my risk, where do I get started, and the list goes on. Regardless if you are already exporting or looking to do so, here are some important questions to add to your export compliance checklist.
1. Am I even allowed to do business with this customer and/or this country?
Among the questions you are asking are how do I export to another country, or can I do business with Russia (or any other country), is my contact or client real or can I do business with them? The fact of the matter is that the United States does have restrictions and limitations with regards to who you are shipping your product to. Regardless if it is an individual or a country. It could be that you are allowed to ship to a certain country but the person or business on the other end may be on a restricted list and you need to know that. Some helpful resources you should be referencing are lists maintained by the Bureau of Industry and Security (BIS) and the Office of Foreign Assets Control (OFAC).
2. Have I agreed with my customer on an incoterm so that I know where my cost, risk and responsibility ends?
Nothing can ruin a business transaction or relationship more than when something goes wrong. Having defined the terms and conditions using the International Commercial Terms (Incoterms®) can help resolve any issues resulting from loss, damage, or any other concern with the shipment. Using Incoterms® is only part of the equation, knowing which Incoterm® to use is the best business strategy. You do not want to be left holding the bag on a shipment gone wrong or worse yet, no way to recover your losses.
3. Have I confirmed method of payment and preferred mode of transportation?
Along the lines of using the correct Incoterm®, exporting to a foreign customer requires knowledge and best practices in negotiating the payment and transportation mode. Not working this out from the onset of the agreement and writing it down in your contract can result in expenses, delays, and possible fines if not done properly or to your benefit.
4. Am I in compliance with all US export requirements for my product?
You may think your product is not subject to special rules or regulations because of its primary use or your customer abroad. Although that may be true, the U.S. maintains controls and sanctions on the export and re-export of U.S. goring goods and technology. This can vary by ultimate destination and/or client and is also affected by the nature of the goods to be exported. Some U.S. government agencies that govern exportations include, Bureau of Industry and Security (BIS), U.S. Department of State’s Directorate of Defense Trade Controls (DDTC), U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), U.S. Census Bureau, and U.S. Customs and Border Protection (CBP), amongst others. A comprehensive and simple explanation from University of Kansas can be found here.
5. Is my export filing done and do I have proof?
You may think all is safe and sound when you hear from your client that they received the shipment and it is in their possession. However, the obligations do not end there. Assuming you hire service providers to do all the heavy lifting and take care of the transportation, customs documentation, logistics, and anything else involved in the process, ultimately the burden of making sure that you are in compliance lies on you, the exporter. What does that mean? Usually it is simply following up and getting physical documentation for the export and that the correct filing was done per U.S. government requirements. Depending on the product and its value, this will involve electronic filing of the Electronic Export Information (EEI) on the governments Automated Export System (AESDirect) hosted on the Automated Commercial Environment (ACE) platform of the U.S. government. Because of record keeping requirements, make sure you have a copy that you are able to produce in case of an audit, not for a year, but for at least five years.
Not following the proper export procedures and requirements for documentation could defeat the purpose for starting or continuing your export program. Although there are many more factors and things to consider when exporting, these are a good starting point as they tend to open discussions that will help improve your compliance and make everyone on your team aware of your policies.
Several resources exist to help you along the way. Training from Global Training Center is a good place to begin. You get a full day of live and interactive training with an experienced instructor that has done and continues to do what you are looking to accomplish in your export program. The course is accompanied by a textbook that is very handy for day to day reference for a large array of regulations and documentation that affect your exports.
Other resources include the SBA, U.S. Department of Commerce through their network of over 100 offices throughout the U.S. and in U.S. embassies abroad, U.S. Export-Import Bank, and a vast community of consultants and advisors beginning with our trade instructors.