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Exporting products to international customers is generally a difficult process involving huge risk. In this competitive global market, a successful export business is ensured only when the exporter is able to carefully predict probable pitfalls and avoid several common mistakes that are made by various other exporters.
1. 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: It is also important for new exporters to seek legal counsel.
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.
2. 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. A recommended resource for helping firms to assess their “readiness” to export is cited below:
Michigan State University’s Center for International Business Education and Research—CIBER: MSU has an Export Academy that has developed a state-of-the-art system to assess export readiness. Called CORE V™, it is a Windows-based managerial tool for self-assessment of organizational readiness to export.
3. Failure to have a solid agent and or distributor’s agreement.
Firms that intend to enter and to expand in exporting will likely need an agent or distributor at some point. Key considerations include
Understanding the Role of Agents: The NTDB Web site at (www.stat-USA.gov) provides information on agents and distributors. As explained on this Web site, agents receive commission on their sales rather than buying and selling for their own account. As agents do not own the products they sell, the risk of loss remains with the company the agent represents (the principal).
Understanding the Role of Distributors: 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.
Contract Drafting Considerations for Agent/Distributor Agreements: 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 agreement should also clarify the terms and conditions for selling the products. For example:
- Determine whether the relationship is exclusive versus non-exclusive.
- Specify which geographic regions are to be covered.
- Outline issues of payment and payment schedules for the products (in the case of a distributor) and for payments of commissions (in the case of agents).
- Determine the currency in which payments are to be made and address currency fluctuation issues.
- Provide specific provisions regarding renewal of the agreement, including specific parameters for performance, promotional activity and notice of desire to renew.
- Establish a specific provision for termination of the agreement and terms for such termination. (Some foreign countries restrict or prohibit termination without just cause or compensation.)
- Outline the termination process for the end of the agreement period.
- Provide for workable and acceptable dispute settlement clauses.
- Assure that the agreement addresses whether or not intellectual property rights are being licensed or reserved.
- Do not allow, without seller’s consent, the contract to be assigned to another party (sub-agents or sub-distributors) to be used to fulfill obligations in the contract or the contract to be transferred with a change of ownership or control over the agent/distributor.
- Assure that your contract complies with both U.S. and foreign laws.
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, (www.ita.doc.gov/cs/) Commercial officers abroad identify up to six foreign prospects that have examined the U.S. firm's product literature and expressed interest in representing the U.S. firm's products.
4. Blindly chasing orders from around the world
You may be in your office when suddenly and 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).
Business considerations in checking out the firm making the inquiry: Make sure the opportunity is a reasonable one and involves something that can reasonably be handled by your firm, without spending countless hours researching the requirement. The Department of Commerce Commercial Service has a number of services to assist you.
- International Company Profile (ICP) – The ICP service, referred to earlier, helps firms investigate the reliability of prospective trading partners.
- Country Directories of International Contacts (CDIC)Provides the name and contact information for directories of importers, agents, trade associations, government agencies, etc., on a country-by-country basis. The information is available on the National Trade Data Bank.
Competitive considerations in checking out the market for the product: By reviewing industry sector information, firms can obtain useful data to assess the probability that the inquiry they are investigating is real. One resource that may be helpful is the Department of Commerce, Commercial Service’s Industry Sector.
The U.S. Department of Commerce’s Commercial Service Officers are a valuable resource for information about firms overseas. Access this service to learn if a particular deal sounds legitimate and whether the agency has any information on the firm making the inquiry. For the e-mail addresses of Commercial Service Offices go to www.export.gov/eac/index.asp.
5. 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.
Access the Export Financing Options: The SBA, ExIm, and the Agriculture Department are three of the biggest providers of export financing in the federal government. A list of the strategic banking partners of the ExIm and SBA export financing and credit insurance programs can be obtained from ExIm and SBA.
Check out SBA’s Export Financing Products: The SBA’s Export Working Capital Program (EWCP) provides short-term working capital for up to one year.
Consult the ExIm’s Export Financing Products: The ExIm’s Working Capital Guarantee Program allows commercial lenders to make working capital loans to U.S. exporters for various export-related activities by substantially reducing the risks associated with these loans.
Access ExIm’s Export Credit Insurance: The Export Credit Insurance program provides protection against losses associated with foreign buyers or other foreign debtor default for political or commercial reasons.
6. 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 at: (www.ita.doc.gov/legal).
7. Insufficient attention to marketing and advertising requirements.
Key considerations include
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 (www.ita.doc.gov). 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.
Advertising: Exporters can advertise U.S.-made products or services in Commercial News USA, a catalog-magazine published 10 times a year to promote U.S. products and services in overseas markets. Commercial News USA is disseminated to business readers worldwide via U.S. embassies and consulates and international electronic bulletin boards, and selected portions are also reprinted in certain newsletters.
U.S. Pavilions: About eighty to one hundred worldwide trade fairs are selected annually by the Commerce Department for recruitment of a USA pavilion. Selection priority is given to events in viable markets that are suitable for new-to-export or new-to-market, "export ready" firms.
8. 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. You can visit their Web site by going to ts.nist.gov.
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?
- 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.
9. Failure to obtain legal advice
While it is virtually impossible for any firm, no matter how big or small, to know all of the laws that pertain to exporting from the U.S., as well as the relevant laws of other countries, there are measures that can be taken by firms in the planning process to minimize the probability that they will make unnecessary errors that have grave legal consequences. Some of the measures that can be taken in the planning process are
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.
Consult the Commerce/ITA Legal Web page: the DOC, International Trade Administration’s (ITA) legal Web site: (www.ita.doc.gov/legal/)
10. 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.
The U.S. Department of Commerce Bureau of Export Administration (BXA) is the primary licensing agency for dual-use exports (commercial items that could have military applications). The first step in determining your license requirements is to classify your product using the Commerce Control List (CCL). Once the product’s classification is determined, the following five questions will determine your obligations under the EAR:
- What is the item you intend to export or re-export?
- Where is it going?
- Who will receive it?
- What will they do with it?
- What are the recipient's other activities?
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