Export Ready - "So What's The Next Step?"
Your excitement level is at an all time high. You’ve allocated resources and people to taking your business international and even picked a potential market. You’ve checked that your passport is up to date and you are ready to start exporting tomorrow. It’s all systems go. Whoa! Slow down! Unfortunately, this is the scenario that many businesses follow and many of them will struggle to meet their expectations and waste considerable resources in the process. Businesses would do well to remember the saying ‘the devil is in the details’. So, what are these extra details you need to research and why do you care?
Presumably your goal for selling goods into or for setting up a presence in your chosen market is to increase your sales and enhance your businesses profitability. You can’t do this if your goods are denied entry into the chosen country or you are unable to operate in the country due not having met the local laws for foreign entities. In these situations, your goods may be seized and you may be liable for fines and/or other penalties. The areas you need to address can be roughly broken down into four areas namely legal, financial, risks and the way business is done in your industry in the target country. The following provides some basic considerations (it is by no means a complete list of what you need to research) and is provided for guidelines only. Depending upon your industry there may be additional information that you require.
So, where to start? If you have not already done so, as part of your export readiness assessment, you need to check whether or not your target country is subject to any Economic Sanctions. These sanctions may apply to all goods and services or just to specific goods and services. However, even if your chosen country is subject to sanctions, you may still be able to get an export certificate in special circumstances. On a cautionary note, if your company has operations in the United States then you need to consider their list of countries against whom they have applied economic sanctions in addition to your own. US regulations permit them to hold businesses accountable with operations in the US even if the transaction takes place between the home country and the target country. In this situation you should proceed with caution and professional advice.
The next step you should consider is whether or not your product will be subject to Export Controls considerations. These apply to any products that may have military uses or other restrictions such as nuclear proliferation. The vast majority of businesses are not affected by this. However, if this applies to your business, then you need to apply for an Export Certificate. Failure to do so can result in financial penalties and/or jail time. If you are in doubt whether or not this applies to you, you should check with your local Trade Commissioner for advice.
Once you are sure that you have complied with the foregoing, you are ready to look at your target country in more depth. The following outlines the main areas I look at when assessing a target country.
Getting paid starts with having a valid contract so I need to know if there are any unique requirements that I need the to comply with. For instance, the country may have regulations that require the contract to be in their native language, it may only be enforceable in the buyer’s country or some other aspect peculiar to that country. Where the contract is signed may have tax consequences that you need to consider. What remedies do they allow for you to use if the contract is broken? As you can see even just considering the contract raises many issues that you would not have to consider in your home country.
If you are going to have a presence in the country, then you need to know what the rules are for setting up a business. What are the rules regarding foreign ownership? Are you required to have a local partner, is there a minimum capitalisation required, what other conditions must you meet? What types of visa do your managers need to work in the country? A good, international lawyer familiar with your target country can help with this as well as your contract.
If I am selling products, payment may depend upon meeting the requirements for documents to accompany the goods when they enter the country. For instance, you may need your documentation certified by the chamber of commerce in your target country. Your freight forwarder can help advise you what you need in the way of documentation.
The first financial issues I look at are to see if a free trade agreement with the country and also to see if we have a tax treaty with the country. One of the major problems you can face when entering a foreign market is, the application of tariffs that makes your product uncompetitive with other products already in the market place. If this is the case, then you may need to look at alternative markets. If you are setting up operations in the country, then you need to make sure that a tax treaty exists between your home country and the target country. If a tax treaty does not exist, then you face the issue of being taxed on your profits in your target country both in that country and in your home country. In effect taxed twice on the same income.
If you are setting up operations in the target country, then you need to look at the rules regarding repatriating both your profits and potentially your capital. There may be limits both as far as amounts and/or the timing of their repatriation. There is not much point going into a country if you can’t get your money out.
They say forewarned is forearmed. Recognising the potential risks posed by your target country means that you can take appropriate steps to manage them. Three of the more common areas of risk are: posed by the economic performance of the country, the level of corruption present, and the physical risk posed when working there.
The economic risk affects many aspects of your activities in your target country. It affects the ability of your buyers to purchase your product either positively or negatively. It has a large impact on the exchange rate of the currency you need to repatriate. In extreme cases, it may impact the country’s ability to provide the foreign currency you need to repatriate your profits. Your local export credit agency can help you recognise these risks and help you devise a plan to mitigate them.
Unfortunately, many countries in the world are beset by high levels of corruption. This can have an impact on everything from bidding on contracts to problems landing your goods in your target country. Most developed countries have a bribery and corruption act, which prohibits the payment of bribes or facilitation payments to acquire sales or contracts. Penalties for engaging in bribery can range from financial penalties to jail time. As a minimum you should have an internal written policy as to your company’s stance on this that all of your employees and agents should sign. The physical risk is one that often gets forgotten. You need to asses the physical risk to your employees in the countries where you propose to have facilities. Kidnapping is still common in some countries and is something that will require you to incur extra costs in the way of security and contingency plans.
How is Business Done in Your Target Country?
This is an area that frequently gets overlooked. Before setting foot in your chosen market you need to know how business is done in your industry in your chosen market. This includes such factors as how is the industry structured, cultural aspects such as forms of address, negotiation strategies, social norms and many others. It is for these reasons that it is strongly recommended that you visit the country before making a final decision as to whether a particular market is right for you.
The foregone is by no means a complete checklist of what your company should do before entering a new market and you should talk to your professional advisors regarding your specific needs before making a final decision as to the fit of the country. The answers to these questions will go a long way to helping you decide what market entry strategy you want to use.