Business Overseas Trading
Overseas market entry—areas for awareness (to help prevent failure/mistakes)
Entering foreign markets is often impeded by the uncertainties or fears of many unknown factors in those markets, such as cultural differences, dozens of foreign languages, foreign currencies and many other issues. Further, when managers take their first trips overseas, they are not conditioned to observe what is really going on in those countries, nor are they conditioned to deal effectively with business people in those countries.
The following are some of the factors that could immediately prevent a company from starting into foreign markets:
* Legal aspects of representation in a market
* Standards and regulatory issues
* Export controls
* Patent and trademark concerns
* Product adaptations
* Production capacity and equipment restraints
* Financial resources required.
Compliance with Standards and Regulations
Often the greatest obstacle to getting into foreign markets is the array of standards and regulations with which it must comply if the company is to market its products or services in that country. Identify which standards and regulations affect the company, then begin to lay the groundwork for complying with those standards and regulations.
Key points overlooked often include: what product labelling requirements must be met? (Metric measurements, AC/DC electrical, voltage, etc.) The European Community now requires 3 languages on all new packaging. Language barriers – the literature may be required in a language other than English, and a product literature translator to handle the technical language may be required. There may be problems in the handling of initial correspondence and communications, including phone calls and letters.
EXPORT FINANCING- Because of the competitiveness of international trade, the exporter’s ability to offer buyers credit can often determine whether that exporter wins a sale. To offer liberalised credit terms the exporter often seeks outside financing for his credit sales in order to avoid restricting working-capital availability. The extent of credit offered will depend upon the exporter’s cost of outside financing, the ability to pass this cost on to the buyer and importance of the sale.
To avoid problems with payment, you can make it a matter of course to require all foreign customers to obtain a letter of credit from a U.K, U.S. (or well-established foreign) bank that guarantees that no matter what happens to your customer’s business operations down the road, you’ll be paid. Given that currency swings also present a risk, they can wipe out your profit margins if they move against you it’s also a good idea to require all payments in U.K or U.S. dollars. If foreign customers can’t, or won’t, comply with those requirements, then the safest course is simply to turn down their orders.
Accounting and taxation -These laws vary from country to country. It is advisable for the exporter to find out the applicable laws specific to the countries of interest.
Foreign Governments – Foreign governments, particularly in developing countries, often sponsor special agencies to aid and facilitate foreign direct investment. Some examples include the Mexican Investment Board (MIB), the Portuguese Trade Commission and the Bahrain Marketing and Promotions Office. These foreign investment promotion agencies can provide detailed market information, joint venture leads and make contacts with key officials.
Self-Inflicted Risks-These include acting out of haste or inexperience, pursuing too many or the wrong markets; use sales literature that unwittingly offends; applying U.K. marketing methods in countries with different business practices; appoint incompetent overseas representatives that cannot be terminated; agreeing to unfavourable payment methods or terms; trying to handle all the shipping and documentation without training. By seeking export counselling/training, attending export seminars, doing extensive market research, adapting and diversifying to the market, and using specialists to handle the details, the company will be eleviating some of the more obvious problem areas within the export trade.
Financial Risks- The main concern is non-payment after you’ve shipped the goods, either because the importer can’t or won’t pay, you can however protect yourself with export credit insurance. Many foreign buyers want delayed payments say by sight draft within 30-120 days after the goods arrive. These are customary terms when you know and trust the buyer. You might also extend credit if your competitors are offering these terms. That increases your risk, particularly if, by payment time, the buyer’s local purchase costs have increased due to depreciation against the pound.
Legal Risks- Every country has its own business laws and regulations, and you’re expected to know them. Many are similar to U.K. laws or follow international standards, and pose no particular problem. Some vary widely by country, affecting import procedures, agent/distributor agreements; rights to own businesses or land; tax liability; currency trading; health and technical standards; and what you can eat, drink or wear. Failure to comply could trigger fines or worse. Information about these matters is readily available from the Foreign Office or DTI. Take the time to do market research, and seek legal advice as needed.
Political Risks – Political upheavals occur less frequently now than before, but could still erupt. Dramatic changes could result, including major economic shake-ups, nationalisation, expropriations, loss of personal rights, and physical dangers. These could prompt foreign reactions in the form of economic sanctions, boycotts and embargoes. You have no control over events. If you’re caught in the middle, recourse is limited and slow, so be alert to what’s happening in the world. More common are the shifts to the economic right or left that often come with periodic elections. These can be “good” for U.K. exporters, not necessarily bad. For example, the shift toward privatisation and freer trade in Latin America, Eastern Europe and the former Soviet Union offer major new opportunities for U.S. exporters.
Your business may also be required to: -
develop new promotional material
* subordinate short-term profits to long-term gains
* incur added administrative costs
* allocate personnel for travel
* wait longer for payments
* modify your product or packaging
* apply for additional financing
* obtain special export licenses.
If your company’s financial situation is weak, attempting to sell into foreign markets may be ill-timed. There are however no hard-and-fast rules as to which businesses should export, and which should not.
Trade/Market Barriers
Limitations on trade – these are barriers often used by Governments to limit entry to the home markets for various reasons. The methods used vary but generally act with the same outcome – protecting the home market.
Methods include,
* tariff levels
* quotas
* Documentation and import regulations
* Local standards, practices, and other non-tariff barriers
* Patents and trademarks
* Preferential treaties
* Legal considerations investment, taxation, repatriation, employment and code of laws.
Tariffs
Tariffs are taxes imposed on imported goods. In many cases, tariffs raise the price of imported goods to the level of domestic goods. Often tariffs become barriers to imported products because the amount of tax imposed makes it impossible for exporters to profitably sell their products in foreign markets. Non-tariff barriers are laws or regulations that a country enacts to protect domestic industries against foreign competition. Such non-tariff barriers may include subsidies for domestic goods, import quotas or regulations on import quality.
Export License
Export controls are based on the type of goods being shipped and their ultimate destination. Most exports do not require a license. Technically, most exports are shipped under a “general” license which does not require an application. However, should your particular export be subject to export controls, then a “validated” license must be obtained.
Widely differing laws and business practices exist in other countries. These encompass trade, monetary and fiscal policy; pricing, distribution and promotion; treatment of intellectual property; health, safety and technical standards; and the like. They affect what you’re allowed to or should do to protect yourself in the market. Although many are business friendly and compatible with the U.K., some pose obstacles and risks for exporters. It’s best to research potential problems in each country and seek advice from an international law firms if needed.
The Government maintains export controls to prevent the export of goods and technologies contrary to its policies. These policies include preventing the proliferation of weapons of mass destruction and the build-up of destabilising stocks of conventional weapons, strategic and foreign policy concerns, compliance with international treaty commitments, the operation of United Nations trade sanctions and UN and EU embargoes. If goods or technologies are subject to UK export controls, you will need a licence to give you legal authority to export them.
Trade sanctions and arms embargoes imposed by the UK in accordance with resolutions of the United Nations Security Council are implemented in the UK by way of Orders in Council made under the United Nations Act 1946.
The main types of goods which need a licence are:
* Military equipment such as arms, ammunition, bombs, tanks, imaging devices, military aircraft and warships
* Nuclear-related goods including nuclear materials, nuclear reactors and nuclear processing plant.
* Dual-use goods, designed for civil use but which may be used for military purposes such as certain materials, machine tools, electronic equipment, computers, telecommunication equipment, cryptographic goods, sensors and radar, navigation and avionics equipment, marine equipment and space and propulsion equipment.
* Chemical weapons precursors, and related equipment and technology.
* Certain micro-organisms, biological equipment and technology.
* Goods used in programmes involved in weapons of mass destruction and missiles used for their delivery.
* Goods to be exported or supplied to destinations which are the subject of United Nations trade sanctions.
The WTO is the only international agency overseeing the rules of international trade. It helps trade to flow smoothly, settles trade disputes between governments, and organises trade negotiations. The WTO was set up in 1995 and was preceded by another international organisation known as the General Agreement on Tariffs and Trade (GATT). The WTO believes protectionism leads to bloated inefficient companies. GATT was formed in 1948 in the Cuban capital of Havana and was the result of 23 countries getting together to sign an agreement to reduce customs tariffs. Membership of the WTO has now mushroomed.




January 17, 2010 | Posted by admin
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