International Trade: Profitability Starts With a Plan
By: STEVEN J. DICKINSON
June 2007
Representing excellence across a wide range of industries from agriculture to biotech, Minnesota and neighboring states literally have a world of opportunity in front of them in terms of markets for their products and services. Exploring that world offers the potential for exciting growth and profitability. But if you’re new to international trade, or even if you’re not, any foray into foreign territory requires doing some groundwork before you get on a plane. Here are five things to keep in mind if you’d like to sell a product or service outside the U.S.
1. Do Your Homework.
What is the best market for your product or service? The Minnesota Trade Office is an indispensable source of information and can assist in everything from assessing whether exporting is a good fit for your company to facilitating relationships; locate them at www.positivelyminnesota.com. The U.S. Department of Commerce and its Export Assistance Centers are other valuable resources for exporters; you can find more information at www.export.gov. You can also find trade statistics product by product, state by state, or country by country online at http://tse.export.gov. Many industry groups and state and federal government agencies conduct trade missions or sponsor trade shows and other events that enable you to become more familiar with a new country or market.
Build a learning curve into your international business plan, and be thoughtful about where to devote your effort. Some countries are more difficult to work in due to unrest or corruption, but be aware of more mundane concerns like language barriers and time differences as well. If you’re an eight-to-five company doing business halfway around the world where the workday is the opposite of ours, simple communication can be difficult.
2. Know Your Intermediaries.
Just as important as knowing there’s a market for whatever you’re selling is figuring out how to best access and maintain it. Every country and region poses unique challenges that may factor into the bottom line, including legal, economic, market, and tax issues as well as cultural mores and political considerations.
Ask yourself what you want to accomplish. Who are you going to work with in your chosen country? What kind of relationship will it be? Selling directly from the US? Selling through a local subsidiary? Sales rep? Distributorship? How will you find a reputable individual, dealer, or buyer?
Part of trade mission and trade show work is pre-screening people, arranging meetings, and talking to potential customers. State and federal agencies can be extremely helpful in opening doors, making introductions, and even screening agent or distributor candidates. They can also recommend people to advise you on logistics such as shipping and warehousing, and in understanding who is responsible for what.
3. Use Contracts.
It may sound obvious, but it’s amazing how many companies skip this step, doing business on just a handshake. A good contract doesn’t merely put terms on paper—it does it the right way. Contracts need to reflect the business terms of the deal – don’t leave things to chance (or, worse, to a judge 5,000 miles away). You should address product guarantees, warranty limitations, and other items that are typical in U.S. domestic sales.
Consider local requirements, such as licenses, permits, and product certifications. For example, you may find it impossible to get your products into Europe without the “CE” product certification. You also need to address issues of U.S. laws and requirements, including the export regulations described below and international laws, including a treaty that governs international contracts for sales of goods. You will need to review and, likely, revise your standard contract for use in export sales.
4. Protect Your Rights.
Intellectual property rights, including trademarks and patents, are governed by the laws of each country. Your U.S. patent has no legal standing in other countries – you must obtain patents in the other countries, too. The same is true for trademarks and copyrights. You may also want to protect other intellectual property, including trade secrets, which are not always recognized abroad. Even countries that have adequate laws on the books may not have effective mechanisms to prevent or redress infringement. It is important to understand the overall legal environment for intellectual property rights in a new market and to take appropriate steps to protect your rights.
5. Avoid Jail.
Or, to put it mildly, be aware of the rules and regulations surrounding your trade operations, and abide by them. Jail is uncommon (though possible) for trade violations, but fines, sometimes heavy, are not. And since September 11, 2001, export control is very closely watched. For example, an officer of a customer that is a government-owned company may ask you or your agent or distributor for a commission to land a contract, in violation of the Foreign Corrupt Practices Act; your customer’s name may be on a very long list of people with whom U.S. companies may not do business, in violation of U.S. export rules; or your Middle Eastern customer may deliver to you a letter of credit that requires the captain of the vessel on which your goods are shipped to certify that the vessel is permitted to enter the ports of the customer’s country, in violation of the U.S. law against complying with the Arab League’s boycott of Israel. Compliance with any of these requests could result in penalties for your company, or even you personally. When in doubt, ask, and, if you discover any potential misdeed, take appropriate actions.
Will export be the next big thing for your business? There are no guarantees, but strategic planning, thoughtful research, and utilizing available resources will greatly increase your chances of success. The rewards, including increased sales and profits and a more diverse customer base, are well worth the effort.