International trade as a growth opportunity
The importance of global expansion as a growth opportunity has been stated most clearly by Dr. Lucius Riccio, professor at Columbia Business School:
"It is a time of global transformation and change made possible by logistics innovation. A time when the smallest companies can compete with the largest ones---sometimes with the advantage of being more nimble and quicker to seize opportunities."
In most countries of the world, international trade represents an important share of gross domestic product. In considering alternatives to grow your company, it will be worth investigating this accelerating trend which is the outcome of increasing industrialization, transportation and communication tools. You can follow the footsteps of large corporations that are already looking more beyond their country borders for growth. In many cases such as General Electric, Coca Cola and Proctor and Gamble, offshore earnings are beginning to outstrip domestic profits.
International trade is increasingly important to many smaller growing businesses as well. It is equally attractive to either business-to-consumer or business-to-business firms. Your opportunities can lie either as a buyer or a seller.
- You may want to add cashmere sweaters to your line. As a buyer you will need to become an importer in order to compete in the marketplace.
- As a seller you may want to establish markets in other growing economies. (And as a buyer you may want to outsource manufacturing to a firm in Asia.)
- As a business-to-business manufacturing operation, you could utilize online conferencing and IT skills to expand your sources of supply as well as your customer base.
The purpose of this session is to enable you to review the highlights of international trade and provide you with helpful resources. Your global expansion will involve complexities including documentation, shipping, financial, legal, communications, governmental regulations, licensing and property rights. So you will also need to expand your knowledge beyond the scope covered here.
A tool for hollow corporations
International trade is especially appropriate for the rapidly growing number of "hollow corporations." A hollow corporation is a business without a factory and with a minimum number of employees in which manufacturing is performed by outside suppliers. A hollow corporation might depend on outside suppliers for virtually all of its products, such as an American toy company importing product from China. Or, it might depend on outside suppliers for selected components in its overall product line, such as The Boeing Company.
Franchisors have been expanding globally for decades. As they saturate their domestic markets, they depend more on global expansion. Many franchisors avoided dealing with individual franchisees and instead have signed up area licensees or even country licensees.
Complying with taste and other preferences is important. South American countries have a taste for sweets and hence are a good expansion territory for Dunkin Donuts©. In other parts of the world, recipes as well as products have been tweaked to satisfy local tastes.
A good resource for investigating international franchising is the 50-year old International Franchise Association (IFA). Their members operate franchise companies in over 100 different business format categories and firms that support the industry in marketing, law and business development. Their website is www.franchise.org.
Advantages and Disadvantages of International Trade
Advantages to consider:
CEO, Linen Pro Designs, Inc.
|What is the smartest decision you made in starting your linen business?|
- Enhance your domestic competitiveness
- Increase sales and profits
- Gain your global market share
- Reduce dependence on existing markets
- Exploit international trade technology
- Extend sales potential of existing products
- Stabilize seasonal market fluctuations
- Enhance potential for expansion of your business
- Sell excess production capacity
- Maintain cost competitiveness in your domestic market
- Expansion brought about by international trade could accelerate the advantages of taking your company public., from session 13 in this course.
Disadvantages to keep in mind:
- You may need to wait for long-term gains
- Hire staff to launch international trading
- Modify your product or packaging
- Develop new promotional material
- Incur added administrative costs
- Dedicate personnel for traveling
- Wait long for payments
- Apply for additional financing
- Deal with special licenses and regulations
- You will need to set up specialized conferencing and communications tools taken from session 2 in this course.
Common Mistakes Made in International Trade
CEO, Linen Pro Designs, Inc.
|Do foreign governments offer helpful information on importing to or exporting from their countries?|
A detailed guide on international trade can be found in Exporting, Importing and E-Commerce
by Sharon T. Freeman, Ph.D., President of the All American Small Business Exporters Association. Following is a condensed version of Dr. Freeman's "how-to" guide in avoiding the ten common export start-up mistakes.
- Failure to obtain export counseling and to develop a master international marketing plan before starting an export business.
Utilize government and association resources for export counseling. Hire a lawyer to help you structure your export operations for the long run: Lawyers are concerned with issues of compliance on both ends of the transaction, therefore they are instrumental in helping you to make sure that your recordkeeping system is planned correctly, that your legal documents are structured correctly, and to advise you on a broad range of compliance issues before the sale, during the sale, and after the sale.
- Insufficient commitment to overcome the initial difficulties and financial requirements of exporting.
To be successful in exporting, firms have to establish an export department to which they dedicate personnel and a budget, and for which they develop appropriate procedures, preferably in consultation with a qualified trade lawyer.
- Failure to have a solid agent and or distributor's agreement.
Firms that intend to expand into exporting will likely need an agent or distributor at some point. The key legal distinctions between an agent and distributor are:
- A distributor takes title to the goods and accepts the risk of loss. A distributor makes profits by reselling the goods.
- Distributors cannot contractually bind the company producing the goods.
- Distributors establish the price and sales terms of the goods.
The first and most important consideration when drafting an agreement is to ensure that the agreement clearly states whether there is an agent or a distributor relationship.
The Commercial Service of the Commerce Department provides a service to identify qualified agents, distributors, and representatives for U.S. firms. For each Agent/Distributor Service
- Blindly chasing orders from around the world.
You may be in your office when unexpectedly someone from a foreign country contacts you electronically and wants to buy a line of your products. What do you do next?
Make sure the order is not on the denied list: Go to the Bureau of Industry and Security's Web site to view the entire list of denied orders (www.bis.doc.gov/dpl/default.shtm).
The U.S. Department of Commerce's Commercial Service Officers are a valuable resource for information about firms overseas. For the e-mail addresses of Commercial Service Offices go to www.export.gov/eac/index.asp.
- Failure to understand the connection between country risk and the probability of getting export financing.
The best source of information about whether a country is in good standing with the U.S. is the U.S. Export-Import Bank's Country Limitation Schedule. (www.exim.gov).
- Failure to understand Intellectual Property Rights (IPR).
Intellectual property rights refer to the legal system that protects patents, trademarks, copyrights, trade secrets. It is important for exporters to understand how and whether intellectual property rights are protected in different countries. See the U.S. Department of Commerce's Legal Counsel Web site.
- Insufficient attention to marketing and advertising requirements.
Trade Shows and Trade Missions: Trade shows and missions may be in the virtual form or entail traveling to the foreign country. All Department of Commerce-sponsored shows and trade missions are listed in the Export Promotion Calendar, available on the TIC Web site, the NTDB or by mail from a TIC trade specialist. Information is also usually posted on the Internet pages for industry offices accessible from the International Trade Administration. For an additional source of information on upcoming trade shows visit the Internet Web site for Trade Show Central (www.tsnn.com) or the Trade Show Center (tradeshow.globalsources.com) Web site which lists trade shows around the world.
- Lack of attention to product adaptation and preparation needs.
The selection and preparation of a firm's product for export requires not only knowledge of the product, but also knowledge of the unique characteristics of each market being targeted. Key considerations include:
Product Adaptation to standards requirements: As tariff barriers (tariffs, duties, and quotas) are eliminated around the world in accordance with the requirements of participation in the World Trade Organization (WTO), other non-tariff barriers, such as product standards, are proliferating. Exporters must understand conformity requirements to operate on an international basis. The DOC's National Center for Standards and Certification Information (NCSCI) provides information on U.S. and foreign conformity assessment procedures and standards for non-agricultural products.
Product Engineering and Redesign: The factors that may necessitate re-engineering or redesign of U.S. products may include differences in electrical and measurement systems.
Branding, Labeling and Packaging: Cultural considerations and customs may influence branding, labeling and package considerations.
- Are certain colors used on labels and packages attractive or offensive?
- Do labels have to be in the local language?
- Must each item be labeled individually?
- Are name brands important?
Installation: Another important element of product preparation is to ensure that the product can be easily installed in the foreign location. Importers and exporters need to know they may also consider providing training or providing manuals that have been translated into the local language along with the product.
Warranties: In order to compete with competitors in the market, firms may have to include warranties on their products.
Servicing: The service that U.S. companies provide for their products is of concern to foreign consumers. Foreign consumers want to know whether they can access spare parts, technicians who can service the product, and distributors of the products in their countries.
- Failure to obtain legal advice.
Utilize SBA's ELAN service: Under the Export Legal Assistance Network (ELAN), your local SBA office can arrange a free initial consultation with an attorney to discuss international trade questions.
- Failure to understand export licensing requirements.
Businesses that are new to the export arena may confuse the local and state rules regarding business taxes, zoning and other issues, i.e., legal registrations, with the federal requirements governing export licenses. In order to export an item that may be on the restricted list, an export license is required. This allows the federal government to control the export of the goods. The license is not required for every item exported.
Get advice from experts
Preparing for and keeping abreast of international trade can be secured by seeking out advice from the following resources:
- Export counselors
- Export seminars and workshops
- International trade consultants
- Seasoned exporters
- Trade associations
Since countries throughout the world benefit by international trade, federal and state governments everywhere have assessment and training resources. For example the U.S. government provides many valuable resources of information. The U.S. Small Business Administration offers aid to small international businesses through two major programs: business development assistance and financial assistance. Our first recommended resource is therefore the U.S. Small Business Administration's Office of International Trade.
U.S. Government resources
- The U.S. International Trade Administration's website www.trade.gov seeks to increase jobs in the U.S. by increasing the number of companies exporting and expanding the number of markets current U.S. companies sell to. It offers market information, trade leads and overseas business contacts.
- The Department of Commerce Web site www.commerce.gov furnishes trade opportunities for U.S. Business and export related assistance and market information. Trade specialists will work with businesses to identify key markets, build market-entry strategies and provide guidance needed to take products and services from the U.S. to global markets. Their activities include participation at trade shows online.
The U.S. Government Export Portal www.export.gov provides online trade resources and one-on-one assistance for your international business. Training and counseling is a multi-phase step. Counselors can help you design a training program to match your specific needs.
You can find articles about protecting your Intellectual Property abroad at www.stopfakes.gov as well as toolkits for Brazil, China, Korea, Malaysia, Mexico Peru, Russia and Taiwan.
- Search engines such as Google or Yahoo www.google.com or www.yahoo.com provide a huge database of information (type in "international trade") that will require selectivity to retrieve the most helpful information.
- The Federation of International Trade Associations www.fita.org provides portals to trade leads, market research, a global trade shop and even a job bank.
- www.worldbid.com is a large network of international trade market places, providing trade leads and new business contacts.
THE TOP TEN DO'S
- Consider international trade as a growth opportunity.
- Investigate franchising for global expansion.
- Evaluate your competition's international business.
- Develop a master international marketing plan.
- Dedicate personnel, a budget, and appropriate procedures.
- Create a solid agent or distributor's agreement.
- Understand importance of intellectual property rights.
- Research marketing and advertising requirements.
- Conform to the unique needs of each geographical market.
- Take advantage of free online resources.
THE TOP TEN DON'TS
- Minimize the complexities of global expansion.
- Overlook international trade as an asset for hollow corporations.
- Disregard taste and other global preferences.
- Fail to obtain export counseling.
- Blindly chase orders from around the world.
- Neglect to investigate country risks.
- Ignore the importance of legal advice.
- Fail to understand export licensing requirements.
- Forget to understand distinctions between an agent and a distributor.
- Ignore the importance of adapting to foreign markets.
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