EVENT: Practical Advice for Trading Overseas
LOCATION: Best Western Marks Tey
DATE: November 22 2011
PHOTOS: Facebook / Flickr
- Steve Toogood, International Trade Adviser, UKTI
- Tracey Dickins, Head of Commercial and Corporate Finance, Birkett Long
- Noel Harvey, International Trade Adviser, UKTI
- Margaret Chadwick, Chadwick Export Services
- Sarah Preddy, International Trade Manager, NatWest
Exporting can be a game-changer for SMEs, but finding the right market and exploiting it successfully can seem like a minefield. On November 22 inspiresme.co.uk went to ‘Practical Advice for Trading Overseas,’ an event put on by the Essex Chambers of Commerce and sponsored by UK Trade & Investment (UKTI).
The event explored the issues surrounding exporting, covering a wide range of topics including selecting the right products to export (ensuring you understand the country’s marketplace successfully), to the legal arrangements when working with agents or distributors abroad.
Delegates from a wide range of companies and industries were present, from paintball markers to frozen yoghurt. Exporting can bring benefits to all companies, no matter what industry they operate within.
Alongside the commercial presentations, the two UKTI representatives provided an overview of the wealth of services available to UK SMEs looking to move into export markets, including subsidised services and personal introductions to British embassy staff abroad.
Steve Toogood – Practical Advice and Distribution Strategy for Overseas Markets
Companies considering moving into the exports must analyse their own business to discover the best way to position themselves in foreign markets.
Specifically, this analysis should include:
- What makes you different?
- What is your business objective?
- Would exporting add value to your business?
Products for new markets
When companies export to new territories, they follow one of two strategies when it comes to choosing the products going into that market.
- Existing products: brought into new market by market development
- New products: brought into new market by alliances and diversification
Varied product lifecycle
A product’s lifecycle depends on the market in which it is being sold. To ensure products are effectively matched to the markets, businesses looking to export must:
- Innovate to match demand requirements
- Stay close to customers and market
- Focus on profitability and growth
Exporting also provides opportunities for products that might have failed in existing markets. By re-analysing these products and seeing if they have potential in new markets, businesses make the most of their research and development budgets and ensure that historical spend on product development has not been wasted.
To establish what products are suitable for new markets, firms should:
- Segment their product portfolio
- Analyse sales performance by product group or product
- Assess suitability for different markets e.g. EMEA, North America, Developing
Working with agents and distributors may be new for many companies, and it’s important to take these relationships seriously and consider all angles, including:
- Key account access
- Market understanding
Extra tips for success
- Report and monitor on all activity
- Understand your competition abroad
- Invest in research & development – your product is key to success
- Engage with VIPs to understand needs
- Understand market share, by sector and by product
- Involve staff in market engagement to increase chances of success and ensure brand continuity
- Innovate intelligently to differentiate profitably
Tracey Dickins – Agency and Distribution Agreements
When exporting products abroad, businesses will need to decide whether they work via agents or distributors. There are advantages and disadvantages to both; the type of product you’re looking to sell and the industry you work in will normally dictate which option you choose.
Agents v distributors
The main differences between the two are:
- Distributors have contractual agreements with customers and sell the goods directly, whereas agents simply pass on customers to the principal and don’t deal with them directly
- Distributors buy goods directly from the principal, whereas agents
Agreements are essential whether you are working with agents or distributors, but the content of the agreement will depend on which you work with:
- Agency: authority and duties along with rights on termination of agreement
- Distributorship: rights, obligations and restrictions (to extent possible)
Regulations governing agreements
The Commercial Agents Regulations 1993 are the most important laws that you must abide by. This law is retrospectively applied to all agency agreements. The Regulations:
- Makes it unlawful to contract out of terms unless it is in the agent’s favour
- Requires you to provide compensation or indemnity on termination of contract
- Applies to agents operating on a trial basis
- Affects agents working in the EU
Companies looking to export must ensure they are aware whose jurisdiction they operate under at all times. There are steps that must be taken when working in non-UK jurisdictions, including:
- Formalities: are there any local formalities you must abide by, such as registering with the local Chambers of Commerce?
- Execution of agreements: are there any local laws that may hinder the execution of your agreement with your agency or distributorship? Is the agreement enforceable under local law?
- Supplier liability: is the liability of the supplier the same as in the UK?
- Notice periods: do local laws provide governance on notice periods that may contravene your agreements?
- Compensation: how will compensation work in the event you have to terminate an agreement?
- Title clauses: are retention of titles clauses valid under the law of the jurisdiction?
The Bribery Act 2010
This is a very important piece of legislation as it can seriously affect companies operating abroad. The Act:
- Covers old and new bribery offences
- Makes it a corporate offence if the principal fails to prevent bribery by an ‘associated person.’
- By law, agents are ‘associated persons’ to principals, and principals must therefore consider how to mitigate the risk of falling foul to this offence. Because it is a strict liability offence, the only defence is to show that adequate procedures are in place designed to prevent bribery by ‘associated persons.’
Noel Harvey – Making an exhibition of yourself
Attending overseas events can seem like a big deal for small businesses but they are a great way to expand your horizons and your markets.
There are many reasons why people exhibit:
- Identify new distributors/agents
- Find new clients
- Maintain/develop profile with existing clients
- Secure orders
- Conduct market research
- Launch new product or service
- Can’t afford not to because competitors are doing it
All companies must bear in mind that the success of an overseas trade show is determined six months before the event but that poor delivery on the stand can undo all the hard work. You must also remember the importance of intellectual property protection. Be wary of exhibiting abroad if your assets are not fully protected.
There are three elements to exhibiting:
- Conducting the tradeshow
- Follow up
Conducting the tradeshow
You’ll need to perform well at the trade show, as its make or break point for the success of the show. Obviously, if you know what you want to achieve, you’ll find it easier to get what you need.
- Visit the organiser’s office and find out if anything has gone wrong/anything has changed
- Network with other exhibitors – they can point people to your stand and vice versa
- Brief your stand team each day – keep them up to date on any changes to the schedule/important clients
- Set specific goals so you can measure each days’ success
- Define the type of leads you are looking for and work hard to get them
- Manage time effectively – don’t waste too much time on less lucrative leads
- Use enquiry forms so you can keep a record and pass relevant information to sales teams
- Qualify leads accurately, but don’t exaggerate
- Have up-to-date press releases and relevant information for journalists and press, so you don’t use up valuable time talking to them
- Provide press releases/brochures to show press office
- Don’t judge a book by its cover – find out exactly how you can work with a visitor before moving on
Why do visitors attend trade shows?
- Find solutions to problems – you must know what their problems are
- Browse or finalise vendor choice – make sure you’ve been added to approved suppliers list
- Compare products/services – know your competitors and how you differ
- Identify new methods/processes – highlight your processes and know your business inside out
- Meet industry experts – be up-to-date on what is happening in your industry
- Assess industry directions – innovate and lead rather than follow
- Visitors want to know what a product or service can do for THEM - they are not interested in features, but in benefits and solutions. Research suggests visitors expect exhibitors to be knowledgeable. You should know not only about your business, but your competitors and your industry.
Sarah Preddy – Trade Finance
Businesses going into export markets typically need three things: cash, finance and risk mitigation.
- Provides convenient and efficient settlements
- Gives businesses balance and transaction visibility
- Allows businesses to: centralise/concentrate cash to manage it effectively, offset borrowing and cash balances, move money across boundaries cost-effectively, and optimise returns to get the ‘right side’ of exchange rate fluctuations
The type of finance a business needs for international trade is similar to for domestic arrangements, except for a few key differences:
- Length of the trade transaction is extended
- Uniquely linked to underlying risks
- Businesses need finance when trading abroad for a number of reasons, including funding working capital for debtors, creditors and stock, and funding for asset purchase.
Because international trade can sometimes be more risky than domestic trade, businesses often need risk mitigation services from banks. These cover against:
- Commercial risk
- Financial risk
- Economic risk
- Market risk
These services are available from international trade departments at major banks; typically overdrafts will not be sufficient to give companies the tools they need to start exporting. They should talk to their bank’s international trade department to see what products are available to help them get the support they need, such as the Enterprise Finance Guarantee (EFG).
Margaret Chadwick – Logistics and documentation of international trade
International trade involves being on top of both logistics and documentation to ensure every party is happy with the outcome.
This is an important document as it sets out all the details of the deal, including the payment terms. Payment for goods can take place in a number of ways; for the supplier, the best option is immediate payment, which means the entire balance is paid immediately. Letters of credit, which are prepared by banks, are guarantees of payment which can be used in place of cash if the money cannot be raised immediately.
Less agreeable payment terms for the supplier include an open account, where an invoice is raised upon delivery of the goods. Document collection is provided by banks and is effectively an promise of payment, but the risk is not mitigated by the bank.
Mode of transport
This will depend on the type of goods you are shipping, particularly the shape and size. You will be charged on either gross weight or volumetric weight, whichever is the greater. Bear in mind there may restrictions about transporting specific goods by air, such as hazardous materials.
Incoterms are three letter abbreviations which outline how the goods will be transferred, if any extras are included in the price, and when the transfer of risk takes place from the supplier to the buyer. The benefit of incoterms to the supplier is that they can be used to control the shipment of the goods, which is useful if payment for the goods is not instant.
Examples of incoterms:
- Carriage Paid to (CPT) DESTINATION – The seller pays for carriage to an agreed destination point. Risk transfers to the buyer once the goods have been given to the first carrier.
- Delivered Duty Paid (DDP) DESTINATION – Seller has responsibility for delivering the goods to a named place in the buyer’s country, and pays all associated costs of doing so including import duties and taxes.
The nature of the goods may require extra documentation. The ORIGIN of the goods is very important – just because you change goods slightly, it doesn’t mean you’re the manufacturer.
The origin will affect the price of the goods in the buyer’s marketplace, and in some cases the amount of import duty payable. For example, if a business sends EU-origin goods into Switzerland, the Swiss government reduces the import duty owed, and vice versa.
You may need an export license and/or import license to trade internationally. Each party will generally sort out their own licenses at their own expense, but if you ship via a specific Incoterm this may change so be wary of everyone’s expectations. Make sure the goods you are selling are cleared to exit your own country and enter the destination country; even though responsibility for the import license generally rests with the buyer, if the goods are detained at customs you may have a fight on your hands as to who is liable to pay the reclaim costs.
Customers are interested in what is being sent in and out of the country, and the VAT man is particularly interested. If you are shipping goods outside the EU, you can put zero in the VAT box for exports.
Make sure you keep commercial records and all paperwork given to you in case you are asked for them by HMRC or Customs. These include copies of commercial invoices and bills of lading (documents given to a supplier by a carrier, confirming the goods have been received as cargo).
A particularly important document is the Single Administrative Document, or SAD. This is filled in by the courier, but the seller is liable for information that is put onto the form. These details will include the value of the goods being shipped and where the goods are headed.
Keep all forms for seven years, because the length of time for VAT checks is six years plus the current year.