Small Business

Exporting offers the potential to accelerate the growth of your business by diversifying into new markets overseas rather than just serving the domestic market here in Australia.

While there are extra costs involved in managing an export business, you still have the opportunity to increase your profitability through a higher volume of sales and may even be able to achieve higher margins in some foreign markets than you can in the domestic market. Other benefits of exporting include expanded sales and customer networks, exposure to new ideas, technology and global sourcing.

To be a successful exporter, a business usually requires long-term goals and objectives, with a strong commitment to achieving success. It is important that you develop a well-grounded plan that is based on thorough research and addresses all of your marketing, distribution and logistics requirements.

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Export Goals

Q1.What are your export goals in terms of revenue? Give answer

Q2.What are your export goals in terms of market share? Give answer

Economies of Scale

By accessing export markets as a way of growing your sales, you also have the opportunity achieve greater economies of scale in the production or service delivery process, improving your overall competitiveness.

Economies of scale are improved when your fixed costs remain the same but are spread across a greater volume of units sold. Export markets are often also accessed as a means of selling excess capacity to maximise utilisation of capital equipment and human resources.

Technology and Expertise

Entering foreign markets and operating internationally enables firms to broaden their horizons, exposing them to new technologies, ideas, production practices, marketing techniques and management methods.

Exposing staff to foreign customers, competitors and events such as trade shows is an excellent way to build knowledge of latest available technologies and ideas that can be applied and leveraged to improve products, manufacturing processes and service delivery methods.

Market Diversification

Exporting can assist firms to diversify their business risk across several markets (i.e. domestic and international) reducing the dependency on a single domestic market. This helps to protect against the risk of a downturn or increased competition in the local market.

Export Checklist and SWOT... are you ready?

This chapter looks at the internal and external factors that are likely to influence the competitive strategy and export potential of a business. It covers SWOT analysis and export readiness assessment.

Click on a heading below to begin.

You can also watch videos, listen to audio, download a PDF or start the quiz.

2.1 SWOT Analysis

2.2 Product Potential

2.3 Ready to Export?

2.4 Export Market Opportunities

2.5 Export Planning Guide

SWOT Analysis

The SWOT analysis provides information on the market, competitors, and the business environment which can be used in the formulation of strategy that will determine where and how your firm can best operate and compete.

A SWOT analysis is a tool that can be used to analyse a firm's internal and external business environment. When used in the context of exporting, it is undertaken to identify the internal and external factors that are likely to have either a positive or negative impact on your firm's ability to export.

A SWOT analysis is usually broken down as following:

Internal Environment (i.e. strengths & weaknesses analysis)

The strengths and weaknesses analysis examines your firm's internal factors, such as its past performance, resources, strategies and capabilities. The areas to be analysed include:

Products and product range

Research and development

Staff and management skills

Market share

Profitability

Production capacity

Level of borrowed funds

External Environment (i.e. opportunities & threats analysis)

The opportunities and threats analysis is carried out by examining the external factors in the business and market environment. The areas to be analysed include the operating environment and competitive factors;

Operating Environment

Political policies and legal practices

Social & cultural factors

Economic forces

Technological environment

Health and safety

Distribution systems

Logistics costs (Shipping, duties, packaging)

Competitive Factors

Major advantages in price, marketing, innovation or other factors

Number of potential competitors

Comparative capabilities of potential competitors

Once these factors have been identified and analysed, your firm will be able to set the scene for export planning and strategy by taking advantage of the positive factors and defending against the negative factors.

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Export SWOT Analysis

Q1.List some of the strengths of your business. Give answer

Q2.List some of the weaknesses of your business. Give answer

Q3.List some of the opportunities that exist for your business. Give answer

Q4.List some of the threats that exist for your business. Give answer

Product Potential

Products and/or services with high demand in overseas markets will offer the highest potential when exporting. It is critically important to research any markets you plan to enter carefully to understand the suitability and market potential of your product/service.

Assess the unique features of the products/services

To break into foreign markets successfully, you will usually require a point of difference that separates your products from those of competitors that are supplied locally or by other importers already servicing the market. This point of difference, or uniqueness, could be a technology or performance advantage, a cost advantage or other.

Does the product/service require modification?

It is very important to identify whether you need to make any modifications to your product or the way it is sold to meet local regulations, and or preferences. If the product/service requires modification, assess to what extent, and the costs involved. You need to ensure that the benefits of exporting outweigh any costs involved in modifications.

Does the product/service require after-sale services?

If a product/service requires substantial support services after the sale (such as repair and maintenance, technical training or warranty), you may need to find a partner such as a distributor or agent who can provide such services. After-sales support is highly critical for the success of some particular products.

Some businesses can address after sales service issues remotely by sending people from Australia on service call etc, but this can be expensive and problematic in terms of logistics. If your business cannot address after sales service issues appropriately, you will likely experience significant customer service issues that can have a serious impact on your viability in the market.

Ready to Export?

A number of factors need to be carefully considered when evaluating your readiness to export including;

Management Commitment

It is vital that you take time to consider the following questions prior to exporting:

Why do you want to export?

Is exporting one of your solid business objectives, such as increasing sales volume, developing a broader and more stable customer base, or is it just frivolous?

Many businesses tend to achieve export success if the reason for exporting is in alignment with their overall

strategic goals and objectives. A strong and sustained commitment from management is also usually required to successfully compete internationally. Management commitment to an export program usually requires a significant devotion of time by key personnel and committing resources to develop and manage the program effectively. A long-term commitment from management can facilitate market entry and expansion, and therefore lead to export success.

Resources and expertise

Personnel expertise

Does your business have access to experienced export personnel to carry out required export activities? Exporting requires management and personnel equipped with international trade experience and a number of special skills such as organising international transport, handling customs clearance, foreign sales experience, and language capabilities. If you do not have these resources in-house you can often access them through consultants or other providers such as

specialist logistics companies. In areas such as marketing Austrade are able to provide specialist assistance in many overseas markets.

Finance

Does your business have sufficient funds to finance export marketing and operations? Pursuing international markets can require significant funding in the initial stages and ongoing to finance working capital, product modifications, logistics and operations etc.

You should talk to your Bank regarding your export plans and the level of support they are prepared to provide.

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Product/Service

Q1.Describe the product/service you intend to export. Give answer

Q2.What potential issues may prevent your product/service from succeeding in the international market? Give answer

Q3.Will you be making adjustments to your marketing strategy to suit the needs of the export country? If so, describe. Give answer

Q4.How will you provide this? Give answer

Q5.Does your product/service require any form of after sales service or support? Give answer

Q6.Does your product/service require any modifications prior to exporting e.g. regulatory and compliance? If so, identify and describe. Give answer

Q7.What is the pricing strategy for your product/service? Give answer

Q8.What differentiates your product/service from what is offered by your competitors? Give answer

Q9.What is the level of demand for your product/service in the export countries? Give answer

Q10.How will you address these issues? Give answer

Export Market Opportunities

The potential size of the export market

Market Opportunities

There are a number of key factors to consider when assessing export market opportunities for your business' products/services. These factors may include:

The market share your business is likely to gain

The available distribution channels

The suitability and acceptability of products for the target market

The intensity of competition and competitor's strategies

The local economic conditions and trading preferences

Know the target market

Understanding your target market properly is essential for success in exporting. You should be able to determine the characteristics of the target market including demographic patterns and customer requirements and purchasing behaviour. Other factors that are likely to influence the effectiveness of your business' marketing strategies include:

Level of customer service

Product/service quality

Competitive pricing

Efficient distribution arrangement

Packaging

Promotional and advertising methods

Further information regarding methods used to research overseas markets are discussed in a later part titled "Market Research".

Know the competitors

To increase your business' chance of being successful in exporting, you should be aware of your competitors and how they can impact your business. Prior to exporting, you should:

Evaluate the intensity of competition for your product/service in the target market

Identify and evaluate the competitors offering, considering their products, services and promotional strategies

Identify the features and benefits of your product/service and how it differs from your competitors

Determine your business' competitive advantages or unique selling proposition (USP)

Export Planning Guide

Once you have decided to sell your products in a specific foreign market(s) it is time to develop an export plan. A crucial first step in planning is to develop broad consensus among key management on the company's goals, objectives, capabilities and constraints.

Define your objectives - who will read it and what will they do with the plan. Objectives help you decide how much emphasis to put on various sections.

Research is vital - tells you about your industry, potential customers and competitors, and potential sales and costs. Be sure to allocate enough time and resources to do thorough research.

Obtain feedback on your draft plans - include both business associates and others.

Write your own plan - don't borrow a sample plan and simply change the names and numbers. It must reflect what is important to your business and it should flow well, demonstrating why the business will be successful.

Prepare an outline of key points before you start writing - will ensure consistency, reduce duplication and address all key issues.

Believable financial projections - the financial section identifies your financing needs and the profit potential of your business. It is an important part of the plan that gives readers confidence in your business. Test your financial projections - failure to accurately reflect full costs of operation can destroy credibility.

Executive summary - this is likely to be the first, and often only, section people will read. A good summary is short and highlights what is important in your plan. It should be written last.

The first draft of the export plan may be quite short and simple, but it should become more detailed and complete as the planners learn more about exporting and their company's competitive position.

At a minimum, the following 10 questions should ultimately be addressed:

1. What products are selected for export development? What modifications, if any, must be made to adapt them for overseas markets?

2. What countries are targeted for sales development?

3. In each country, what is the basic customer profile? What marketing and distribution channels should be used to reach customers?

4. What special challenges pertain to each market (competition, cultural differences, import controls, etc) and what strategy will be used to address them?

5. How will the product's export sales price be determined?

6. What specific operational steps must be taken and when?

7. What will be the time frame for implementing each element of the plan?

8. What personnel and company resources will be dedicated to exporting?

9. What will be the cost in time and money for each element?

10. How will results be evaluated and used to modify the plan?

Sample Outline for an Export Plan

Table of Contents

Executive Summary (one or two pages maximum)

Introduction: Why This Company Should Export

Part I - Export Policy Commitment Statement

Part II - Situation/Background Analysis

Product or Service

Operations

Personnel and Export Organisation

Resources of the Firm

Industry Structure, Competition and Demand

Part III - Marketing Component

Identifying, Evaluating and Selecting Target Markets

Product Selection and Pricing

Distribution Methods

Terms and Conditions

Internal Organisation and Procedures

Sales Goals: Profit and Loss Forecasts

Part IV - Tactics: Action Steps

Primary Target Countries

Secondary Target Countries

Indirect Marketing Efforts

Part V - Export Budget

Pro Forma Financial Statements

Part VI - Implementation Schedule

Follow-Up

Periodic Operational and Management Review (Measuring Results Against Plan)

Agenda: Background Data on Target Countries and Market

Basic Market Statistics: Historical and Projected

Background Facts

Competitive Environment

Market Entry... Which Market and How?

This chapter provides information on how to identify and research potential export markets and how to prepare and carry out an overseas promotion visit. Various international market entry strategies will also be discussed.

Click on a heading below to begin.

You can also watch videos, listen to audio, download a PDF or start the quiz.

3.1 Market Research

3.2 Identifying Potential Markets

3.3 Visiting Target Markets

3.4 Market Entry Strategies

Market Research

Marketing research is the process of planning, collecting and analysing information relevant to a marketing decision. Marketing research is vital as it provides decision makers with the specific information you need to break up markets or segment them, decide on which areas to focus on or target, and to help identify the best way to position your business relative to competitors.

Effective export market research will help you to properly assess opportunities and the associated costs of entering and participating in the market. Following is a list of typical research objectives that you can use to develop a market research plan;

market size and growth

customers' needs and wants

suitability of firm's products

local labelling requirements

competition and price levels

local production

distribution systems

import duties

regulations

demographics

Market research can be carried out either internally through your own business or by hiring a professional provider such as a market research agency.

Due to the lengthy, costly, and often complicated nature of overseas market research, you may consider a mixed approach in order to maximise results, that is, using the services of professional agencies in addition to conducting your own internal research.

There are two main types of research you can conduct as follows;

Desk research (or secondary market research)

This research method involves gathering information and data that has already been published, such as:

Publication from government and non-government institutions (e.g. www.dfat.gov.au)

Free online databases

Australian Bureau of Statistics (ABS)

Commercial reports and databases

newspapers and trade journals

Company annual reports

Books

Field research (or primary market research)

This research method involves gathering information and data on a firm's operations in particular markets by self-participating, and includes:

direct observations

interviews

conducting surveys

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Market Analysis

Q1.What types of market research have you undertaken? Give answer

Q2.What factors contribute to their success? Give answer

Q3.Identify and describe the products/services that they offer. Give answer

Q4.Identify and describe your major competitors, including other exporting businesses and local businesses within the export country. Give answer

Q5.Describe your strategy for approaching the target market. Give answer

Q6.Will your product/service meet the needs of the target market? If so, how? Give answer

Q7.Describe your target market. Give answer

Q8.Will you be targeting a business market, consumer market, or both? Give answer

Q9.Identify and describe the various market segments within your export countries. Give answer

Q10.What are some of the social and cultural factors in these countries that may affect your business? Give answer

Q11.What are some of the technological factors in these countries that may affect your business? Give answer

Q12.What are some of the economic factors in these countries that may affect your business? Give answer

Q13.What are some of the political and legal factors in these countries that may affect your business? Give answer

Q14.What countries will you be to exporting to? Give answer

Q15.What are your main competitor's current market shares in the export countries? Give answer

Identifying Potential Markets

Evaluate quality of currently available products and points of difference with your product

The following factors are typically taken into consideration when analysing potential markets to determine which are the most attractive;

Market size and growth

Overall market potential, i.e. market size in dollar terms

Growth rate of the market in recent years

Trends and growth forecasts for the type of product

Import history for the type of product/service;

Identify competitors, domestic and international

Comparison of current prices in the market with your planned pricing structure

Market Accessibility

Investigate import duties and tariff rates for the type of product, note that high import duties and tariff costs can adversely affect pricing and competitiveness in export markets

Consider distribution channels, it is very important to understand how you will distribute your products, which could be through local distributors, agencies or wholesalers etc.

Carefully evaluate advertising and promotion options, effective export marketing/promotion is critical in building awareness of your product / brand.

Economic Conditions

Determine the economic climate within the new marketplace, e.g. is it thriving, in decline or growing steadily?

Examine the difference in currency value and exchange rate. It is critical to have a full understanding of currency rates and monitor currency fluctuations to appropriately price your products and anticipate any potentially adverse currency rate changes

Discuss with your bank or financial advisor options to purchase currency exchange risk protection. This type of forward cover can protect you against adverse currency movements.

Cultural, Legal and Political Factors

Undertake research to identify any potential cultural issues that could adversely affect sales of your product. This could be for example translations of your product name or slogan that could be culturally insensitive.

Consider the political stability of potential markets and to what level any instability could affect the sales of your product

Observe whether the legal system is supportive of international trade, this can include factors such as is there enforced protection of intellectual property rights

Check overseas registration and licensing procedures to identify any potential restrictions or impediments to you getting your product into the market

Visiting Target Markets

DSRD has an active Trade Promotion Program focusing on important markets and key industry sectors. The program includes:

After narrowing down some of your options, it is often very beneficial to visit the country (or countries) you have deemed the most attractive for your exporting plans. By visiting these target markets, you will be able to:

Gain a first-hand experience of the cultural and customary practices that may be in place.

Have a better understanding of the size and scope of possible opportunities

Gain a clearer insight on customers' needs and wants by meeting with potential customers

Observe how the products or services are used in the market and by whom

Identify the costs involved and the distribution channels

Trade missions that cater for a range of products/services or are industry specific

Support for participation in selected international trade exhibitions

Independent market visits tailored to meet an individual company's needs.

As a member of an official government trade mission, participants often gain access to key decision makers that would be difficult to access if going alone. Check out DSRD's website: www.export.nsw.gov.au to see if your chosen market is in the list and if so, take advantage of the opportunity.

Planning the visit

Prior to undertaking a visit to any potential country for exporting opportunities, you should:

Try to set up a local contact on the ground to help you such as a distributor to help with transport and meeting arrangements during your visit, particularly in countries where you are not familiar with the culture or don't speak the local language

Accomplish as much as possible before the visit, you should write a basic day by day plan of what you want to achieve and estimate how long each activity or meeting will take and don't forget to factor in local travel times.

Try to setup appointments and meetings etc. before you leave so you don't end up with unnecessary spare time while you are away.

Try to make accommodation arrangements before you leave as far as possible, particularly for your first few days as you don't want to arrive and not have suitable accommodation

Try to estimate as far as possible your on ground costs such as transport and accommodation etc so you don't get any unexpected high expenses

Be aware of local culture and protocols, do some reading before you go, particularly if the country you are visiting is one that has a culture you may not be very familiar with

Determine any required material for the meetings and where possible send company profiles etc to potential customers in advance so they can pre-read before meetings

Estimate the approximate time required to accomplish the tasks

Note: The Department of State & Regional Development manages Visit Programs to many of Australia's key trading markets, which can ease the organisational burden and often deliver better quality contacts in the selected market.

During the visit

To maximise the efficiency and effectiveness of your visit, you should:

Use the visit as an opportunity to try and finalise any local distributor or representatives.

Confirm suitability of distribution channels selected

Find out about competitors' pricing, product characteristics, perceived strengths and weaknesses, buyer behaviour, customer service of competitors etc.

Analyse competitors' promotional activities, including packaging, advertising and other communications

Review industry standards and other regulations and determine the cost of any applications, testing and approvals which impact on your product/service

Collect any industry statistics available which provide further information on your market

Develop more in-depth relationships with prospective distributors and confirm the marketing strategy options

Meet the prospective distributors and evaluate the shipment, review the order dispatch and shipping cycle, develop control systems for forecasting any future orders

Attend sales meetings as the product release program commences[1].

Post-visit actions

It is highly recommended that you follow up your visit as this is an effective way to show you are keen and enthusiastic to conduct business. In addition, your visit may not be considered complete until all the outstanding actions have been satisfactorily fulfilled. Other follow-up actions may include:

Review meeting notes, business cards and contact lists

Confirm mutual expectations in writing

Maintain regular follow up.

Market Entry Strategies

The strategy you choose to pursue foreign market opportunities usually depends on a number of factors including costs of alternative strategies, the amount of inherent risks involved, government regulations, local market conditions, and your control over decision making. The following are the various methods you can enter foreign markets:

Direct Exporting

Establishing an export department within the firm

Selling through your business' sales department allows you to establish a good relationship with the overseas market and buyer. However, such strategy may be banned in some Middle-East and Asian countries.

Sales representatives or agents

A sales representative/agent promotes your product/service, but assumes no risk or responsibility for them. They are generally only responsible for taking orders and closing the sale on a commission basis.

Distributors

Distributors take ownership of the goods and are responsible for payment of the items purchased. They will bear the financial risk and generally provide support and service for the product as well. Furthermore, they typically sell through wholesalers and retailers to end-users.

Foreign retailers

Selling directly to a foreign retailer through mail catalogues, brochures, or other product literature to generate sales. This will reduce commissions and travelling expenses, while at the same time reaching a broader market. This strategy relies principally on travelling sales representatives.

Indirect Exporting

Export management companies (EMC)

Also known as "off-site" export sales department, EMCs usually export products on behalf of indirect exporters, operating either as an agent or distributor.

Export trading companies (ETC)

ETCs provide services in addition to indirect exporters' exporting activities including storage facilities, countertrade and distribution.

Strategic alliances

This is when you and one or more companies collaborate in order to achieve strategic objectives.

Joint ventures

This is when you and one or more companies form a jointly-owned firm to achieve specific business objectives.

Wholly owned subsidiary

This is when your company is fully owned and controlled by a single parent company through foreign direct investment (FDI).

Licensing

This is when you grant an overseas company the right to use your intellectual property for a limited period of time. Licensed property may include brand names, trademarks, patents, designs, copyrights, and know-how.

Franchising

This is where you grant another company the right to use your intellectual property while also offering assistance and support over an extended period of time in exchange for fees or royalties.

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Market Entry Strategy

Q1.What is your strategy for entering the market in export countries? Give answer

Q2.Why have you chosen this strategy? Give answer

Q3.What potential issues may arise from implementing this market entry strategy? Give answer

Q4.How will you address these issues? Give answer

Managing Finance and Risk Protection

4.2 Freight, Logistics and Export Documentation

This chapter will provide a brief overview of the different types of risks commonly associated with exporting goods and the strategies that can be implemented for the management of these risks.

Click on a heading below to begin.

You can also watch videos, listen to audio, download a PDF or start the quiz.

4.1 Export Risks

4.3 Export Pricing

4.4 Export Finance

4.5 Managing Financial Risks

4.6 Insurance and Risk Management

Export Risks

There are generally many risks and challenges involved with exporting your product or service. Some of these risks include:

Country risk - refers to risks of changes in the business environment that would have an adverse affect on your company's operations, profits or assets value in a particular country. It includes risks of political stability, legal systems, economic conditions, cultural environment, and expropriation, restriction of operations or on remittance of profits.

Credit risk or financial risk - refers to risks of non-payment, late payment or even fraud by foreign buyers. These risks may result either from the difficulty in verifying buyer's creditworthiness and reputation due to larger distances between trading parties or the payment options available for international trade.

Foreign currency and exchange rate risk - occurs due to the uncertainty of the future value of a currency. It is the risk that a business' operations or an export value will be affected by changes in exchange rates or the fluctuation of a currency value.

Transportation and logistics risks -transportation risk refer to risks of transferring goods from one country to another. Such risks may include theft; damage of goods while transporting and possibly the goods not even arriving. On the other hand, logistics risks relate to risks of international logistics, in particular the contract of carriage. This carriage contract is drawn up between a shipper and a carrier (i.e. transport operator) and largely depends on Incoterms 2000.

Other risks - Exporting deals with more complex documentation and administration, protection of intellectual property and geographical remoteness from markets and customers compared to operating domestically.

Freight, Logistics and Export Documentation

Due to the complexity of rules and regulations governing international transport and logistics procedures along

Sea or air freight are the two modes of transportation in which goods can be exported to their destinations from Australia. Speed and costs of transportation, destination, business requirements, and the types of goods are the key factors that will influence your decision on the choice of transportation mode.

To ensure the efficiency and cost-effectiveness of the transportation process of your export operation, it is best to research and have a clear understanding of the basic principles behind both sea freight and air freight.

with the lack of expertise in arranging and managing the process, it is becoming increasingly common for companies to hire a freight forwarder or logistics operator to manage their transportation and logistics procedures.

Freight forwarders provide various services such as:

Evaluates and identifies the most economical and suitable mode of transportation

Arrange bookings with shipping companies and airlines

Arrange export documentation

Advise on overseas market conditions, tariff schedules or duty rates, import regulations and other various international trading process

Selecting and managing a freight forwarder

As there are many freight forwarders available, you should be selective in choosing one to manage your procedures. You should also be aware of your rights and responsibilities when dealing with freight forwarders.

Some key factors to consider include:

Their experience in shipping to the firm's country destination

Their experience in transporting the firm's type of goods

Costs, payment terms, reputation for quality service and reliability

Incoterms

International commercial terms (or Incoterms) is an internationally accepted system of trading terms such as FOB, CIF or DDP and are used to define transaction costs and responsibilities between buyer and seller.

To learn more about Incoterms 2000, visit International Chamber of Commerce(ICC).

Export Documentation

Correct and valid export documentation is crucial for transporting your product to the importer smoothly and efficiently, which in turn allows you to receive prompt payments.

Some common and crucial export documents are:

Certificates of Origin (COO)

Bills of Lading (BL)

Air Waybills (AWB)

Letters of Credit (L/C)

To view more information on export document, visit Business Victoria.

To view various forms of export documentation, visit Australian trade & Shipping.

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Freight, Logistics and Documentation

Q1.What will be your mode of transportation? Give answer

Q2.Will you be using a freight forwarder or logistics manager? If so, identify and describe. Give answer

Q3.What potential issues may arise in regards to freight and logistics? Give answer

Q4.How will you prevent or minimise the effects of these issues? Give answer

Q5.Identify and describe any documentation required to export your product. Give answer

Export Pricing

Understand the way business is done in the export market and conduct your business similarly offering the same value proposal as local suppliers. Payment terms, delivery and after-sale servicing are important considerations.

Make the buyer's decision process as easy as possible by preparing your export price list CIF in the currency of the country and port of product destination.

Include a proviso in your price list - "Prices subject to change".

Consider currency fluctuations when preparing the price list.

Do not include "suggested retail prices" on your wholesale price list unless requested as this is not well received, especially in North America.

When preparing an export price list, in many cases, the following costs may apply.

These costs should be added to each item in your product line to be exported:

Fixed costs;

Shipping ex factory to port of departure;

Import duty and taxes;

Customs clearance/broker fee;

Ground transportation from port of entry to warehouse or customer, as appropriate;

Warehousing fees, if applicable;

Agent's commission or importer's mark-up, as appropriate;

Break-bulk fees, if third party warehouse applies;

Packaging and labelling to local standards;

Product certification, if required;

Product liability insurance;

Advertising costs;

Promotional costs.

Remember that the retailer adds a mark-up on your product as well. While this does not affect the preparation of your wholesale price list, it is critical to understand what the retail price of your product would be to the end user. It is also important to understand how your prices stack up against your competitors' and make a determination whether the export market can bear your price.

Options for Calculating Cost

Cost-plus method: In the cost-plus method calculation the exporter starts with the domestic manufacturing cost and adds administration, research and development, overhead, freight forwarding, distributor margins, customs charges and profit. The net effect of this pricing approach may be that the export price escalates into an uncompetitive range.

Marginal cost pricing: This method considers the direct, out-of-pocket expenses of producing and selling products for export as a floor beneath which prices cannot be set without incurring a loss. This would include any product modifications plus economy of scale savings as the incremental cost of producing additional products for export should be lower than the earlier average production costs for the domestic market.

Buyer based: Perceived value. More psychological than based on economics.

Competition based: Benchmarked to competitors or market average.

Price adjustment strategies: Discount pricing and allowances, rebates; discriminatory pricing; promotional pricing (loss leaders to attract customers).

Sample Costing Worksheet for Buyer

Item

Sub-Total

Manufacturing Costs

+ Export packaging (depending on mode of transport)

+ Profit margin

- Discounts/rebates/volume discounts/sales commission

= Selling price ex works (EXW)

+ Transport costs from plant to place of loading (train/truck)

= Selling price free carrier (FCA)

+ Transport costs from place of loading to shipping port

+ Unloading at harbour

+ Transport insurance to shipping port

= Selling price free alongside ship (FAS)

+ Storage costs, terminal handling charge (THC), loading onto

ship

+ Costs for export clearance

+ Commission of port agent

= Selling price free on board (FOB)

+ Freight to port of destination

= Selling price cost and freight (CFR)

+ Insurance

= Selling price cost, insurance, freight (CIF)

+ Additional costs for full transport insurance

= Price ex ship (DES)

+ Costs of import clearance

+ Unloading, THC

+ Costs for documents (i.e. delivery order)

= Selling price delivered ex-quay (DEQ)

+ Land transport costs to nominated destination

+ Full transport to destination

= Selling price delivered duty unpaid (DDU)

+ Costs of customs duty

= Price delivered duty paid (DDP)

Important Notes and Considerations

1. What will the market bear and what is the marketing strategy for the product?

2. Bulk buying/increased buying due to increased sales.

3. Increased efficiency of labour due to high-volume production.

4. Possibility of reduction of export price if fixed overhead costs are already included and completely covered by domestic sales (marginal costing).

5. Export incentive rebate.

6. Agent's commission, finance cost, export credit insurance premium and profit margin should be included in Ex Works price.

7. When quoting ex-works you will have to bear the costs for export packaging.

Sample Cost-Plus Calculation for End User

Domestic Sale

Factory price

$7.50

Domestic freight

$0.70

sub-total

$8.20

Export documentation

sub-total

Ocean freight and insurance

sub-total

Import duty (12% of landed cost)

sub-total

Wholesaler mark-up (15%)

$1.23

sub-total

$9.43

Importer/distributor mark-up (22%)

sub-total

Retail mark-up (50%)

$4.72

Final consumer price

$14.15

Source: Austrade Canada, Tradeport and Australian Business Limited.

Export Finance

The time between production, shipping, distribution and receipt of payment is generally longer for international transactions. Therefore, identifying the key items to be financed and the main sources of export financing is essential for your business to promote its export growth and avoid cash flow issues.

Types of Export Financing

Pre-shipment finance

The amount of funds required for the purchase of raw materials, components and parts to fulfil the sales order.

Post-shipment finance

The amount of funds required to finance operations during the period between the dispatch of goods and receipt of payment.

Working capital

The amount of finance required for day-to-day operations such as labour costs, equipment maintenance and overheads.

Sources of Export Financing

Commercial banks

Financing provided by commercial banks and financial institutions can be a major source of funding for managing and developing your export business. However, the availability of finances will largely depend on the nature and circumstances of your company. Funding required to finance a firms' exports can generally be obtained from commercial banks (such as ANZ, Commonwealth, HSBC, NAB, Westpac), financial institutions and Export Finance and Insurance Corporation (EFIC).

Venture Capital (VC)

Venture Capital (VC) typically involves an exchange, that is, financing for an ownership of the your company's export venture and a claim on future earnings. VC providers usually take an active involvement in management or board-level in the firm.

Supplier/Buyer Credit

Your supplier may be prepared to extend terms to you to offset the time span between purchasing raw materials and receiving payment from your overseas buyer. Additionally you can request a deposit or part payment up front from buyers to assist your cash flow management.

Financial assistance available from the federal government includes:

Export Concessions: Duty Drawback - this is designed to assist exporters to obtain a refund of Customs Duty paid on imported goods that are subsequently exported.

Export Market Development Grant - you may be eligible to be reimbursed for some expenses incurred in promoting your export.

New Exporter Development Program (NEDP) - a package of free services, through Austrade and TradeStart, designed to help you develop your businesses overseas.

Export Finance and Insurance Corporation (EFIC) - helps you obtain finance through EFIC Headway. If you do not have sufficient security to obtain additional bank finance, EFIC can provide a guarantee to your bank, which then provides the necessary funds for your export. For more information about EFIC Headway and other EFIC services, check the EFIC website or call 1800 887 588.

State and territory governments also have financial assistance schemes for exporters.

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Financial Issues

Q1.What method of payment will you accept and why? Give answer

Q2.Identify and describe some of the potential financial risks that may arise, including foreign currency exchange. Give answer

Q3.How will you prevent and minimise the effects of these risks? Give answer

Q4.Identify and describe personnel responsible for the development, review and execution of any contract. Give answer

Q5.What is the total cost of your export operation? Give answer

Q6.List your major sources of finance. Give answer

Q7.Will you be seeking any government assistance with your export operation? Give answer

Managing Financial Risks

A number of payment methods are available for conducting international transactions. However, it is crucial to note that what is usually financially risky for exporters, will often be least risky for foreign buyers and vice-versa. In order to compromise, you may decide to offer attractive sales terms accompanied with appropriate payment method to win sales against foreign competitors.

By choosing the most appropriate and least risky payment method, you may be able to reduce potential payment risk while also accommodating the needs of the foreign buyers. A Documentary Letter of Credit or L/C is usually considered the most popular payment option in international trade settlement. It is a document issued mostly by financial institutions which usually provides irrevocable payment undertaking to a beneficiary against complying documents as stated in the L/C. L/Cs can also be confirmed, transferable, back-to-back, revolving or “Red Clause”.

These payment instruments are subject to the International Chamber of Commerce publication, the Uniform Customs & Practice (UCP) for Documentary Credits, version 600. You should contact your bank for a copy if you intend to trade using Documentary L/C’s.

Managing Credit and Payment Risk:

Assess creditworthiness of foreign buyers

Low- risk buyer

High- risk buyer

No issue

Design risk management strategies

May apply a less costly transaction structure

Obtain insurance

Obtain secure payment options

Choose not to pursue business

A brief comparison of the payment methods for exporters (taken from Export Development Canada):

Payment options

Complexity

Payment in Advance

Minimal

Letter of Credit (L/C)

High

Documentary Collection

Medium

Open Account

Low

Managing Foreign Exchange Risk:

Some common techniques used to minimise foreign currency exchange risks include:

Forward contracts: are contracts that allow the exporter to sell a fixed amount of foreign currency at a fixed price at a mutually agreed future date by entering into contract with commercial banks. Such contracts eliminate the uncertainty associated with FX fluctuations.

Exposure netting: relates to the practice of matching foreign currency inflows with outflows in the same currency to eliminate or "net out" the exposure. This is best handled by opening a foreign currency account with you bank.

Currency options: are contracts that grant the right (but not the obligation) to buy or sell foreign currency at a specified price, within a defined time period. Option contracts offer the possibility for exporters to benefit from favourable fluctuations in FX rates.

It should be emphasised that obtaining a secure payment option such as irrevocable L/C or confirmed L/C may greatly increase the protection your company will have from payment default. Banks will be able to provide you with advice on other payment options including their advantages and disadvantages, as well as how you can protect yourself against fluctuation in foreign exchange rates. Export Finance and Insurance Corporation (EFIC) can also provide competitive finance and insurance facilities to assist Australian firms exporting and investing overseas.

Insurance and Risk Management

Unless all possible risks are identified, your company will not be able to develop a realistic, cost-effective strategy for dealing with them. When identifying the risks, ask:

Exporting may potentially expose your company to risks that go beyond those typically encountered domestically, such as: foreign exchange risk, transportation risks, legal issues, and government regulations. If these risks are not carefully planned for or managed well, it can lead to financial loss or failure of your exporting venture. As such, having a strategy in place is ideal and it will enable you to address and mitigate these risks.

Identifying the risks

What could cause a loss to the export venture?

How serious or costly would that loss be?

It is vital to note that information is likely to be the most critical aspect of an export risk optimisation strategy. When a firm gets access to information in a timely manner, it will have a solid understanding of the risks involved. Therefore, it can select the risk management strategy best suited to its specific circumstances.

Export risk-related information is available from a wide range of sources, such as federal government agencies- Austrade, various state governments, private credit information agencies, banks, and EFIC. The OECD has also released a Risk Awareness Tool for Multinational Enterprises in Weak Governance Zones which aims to help firms address risks and ethical dilemmas that they are likely to face in weak governance zones.

Insurance & Managing Risks

Choose to avoid risky activities. For example, an export firm may choose not to export to a particular country or avoid pursuing business with a particular foreign buyer, after identifying and assessing the risks related to those activities.

Transportation insurance

This type of insurance can protect you as an exporter from loss or damage to goods during transportation. However, the degree of coverage varies from contract to contract according to the agreement between the two parties- i.e. either between the exporter and importer, or the exporter and carrier or private insurers.

Credit insurance

This type of insurance can protect you as an exporter against buyer insolvency or buyer prolonged defaults. You can also include political risk cover. However, the degree of coverage will largely depend on the payment terms negotiated between buyer and seller. Insurance against the risk of non-payment can be obtained through insurance companies like Atradius, QBE and Coface. The following risks will usually be covered:

Default by buyers

Buyers refusal to accept delivery

Buyer insolvency

Delivery affected by unforeseen events

War, hostilities or civil disturbances

Government intervention

Product liability Insurance

This type of insurance is designed to cover you should your product cause damage or injury to another business and/or person. You may also be held responsible for products that are either modified by you, form part of another product or is imported by you. It is particularly important in the US market.

Other strategies

Guarantees: such as bid bonds, performance bond, standby letter of credit. EFIC can provide these facilities in certain cases, should you not be able to through your bank.

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Managing Risks

Q1.Identify and describe any potential risk your business may be exposed to. Give answer

Q2.How will you prevent and minimise the effects of these risks? Give answer

Q3.Identify and describe all the different types of insurance policies your business will take out. Give answer

Resources...Where to go for Assistance?

DSRD has a network of Export Advisors located in various locations in NSW who provide export advice and mentoring. Check the websitewww.export.nsw.gov.au to locate an advisor near you. DSRD also conducts regular seminars and workshops to inform companies of emerging market opportunities and provides networking opportunities between established exporters and emerging exporters

This chapter provides various resources to obtain further information regarding exporting and your business.

Click on a heading below to begin.

You can also watch videos, listen to audio, download a PDF or start the quiz.

5.1 Getting Ready for Export

5.2 Export Strategies

5.3 Market Research

5.4 Getting Financial Assistance

5.5 Freight and Logistics

5.6 Government Programs for Exporters

Getting Ready for Export

AusIndustry - Export Entry Point - An Australian site operated by the Commonwealth Government supplying information and assistance to first time exporters.

The following is a list of useful websites that will help you when getting ready to export. Take the time to visit any that you feel are relevant to your situation.

Australian Business Limited - Offers a range of services for its members and their website has some useful tips.

Australian Industry Group - Provides valuable exporter services.

The Australian Institute of Export - This is a great starting point for courses and publications.

Business.gov.au - A good portal for state and territory government export agencies.

Department of Commerce and UNZ and Co - Provides a detailed plan for developing markets and also a basic guide for exporting.

Department of State Development and Trade (Qld) - Queensland's export programs.

Export61 - An Australian e-commerce site for Australian exporters. It contains some useful articles and many links for advice about exporting. The links to government agencies and chambers of commerce are excellent.

Export SA - South Australia produces an excellent export roadmap.

IP Australia - Information on protecting your intellectual property.

International Trade Centre - Operated by the UN and WTO. The site has a lot of free and low cost data on international trade.

The NSW Enterprise Workshop - Offers courses in international business.

NSW Small Business - NSW has a similar guide at and refers you to the NSW Export Network, where you can learn from other companies.

The State Chamber of Commerce (NSW) - Produces a Trade Handbook (also in CD ROM) which is a reference guide for companies starting off in international trade.

Tasmanian Department of Economic Development - Offers export development services.

VicExport - An excellent site for learning export basics, with a downloadable export handbook.

WA Department of Industry and Resources - Offers a comprehensive online guide to export.

WA Small Business Development Corporation - Operates a Small Business Exporters Network, which has good material on the basics of export.

Export Strategies

Austrade - Case studies provide great insights. Check out the export success stories in ‘Trademark'.

The following is a list of useful websites that will help you when establishing export strategies. Take the time to visit any that you feel are relevant to your situation.

E-business Guide - This guide is an Australian Government initiative to help companies build their online business. The planning section has case studies and advice on planning for web-based marketing.

Exporting online - Information focusing on export business online and developing your online presence - specifically for export. Here you will find tips on search engine visibility, online security and domain names, plus free access to three e-learning modules.

NSW Small Business - Lists the 10 key elements of a sound export strategy and provides a sample export plan.

The US Department of Commerce - A sample export plan and data on export strategies is available.

VicExport - The Victorian Government website will take you through two sample export strategies and provides a good template to construct your own.

WA Department of Industry and Resources - Western Australia has good advice on export marketing plans. Other state and territory governments and industry associations also feature advice on export market planning and strategy.

Market Research

The Asian Development Bank - ADB offers good background data on its member countries at. Click on the 'Regions and Countries' tab at the top of the home page.

The following is a list of useful websites that will help you when conducting market research related to exporting. Take the time to visit any that you feel are relevant to your situation.

Austrade - Austrade's website provides country and industry data as well as links to other sources.

CIA website - Provides information on country profiles.

Corporate Information - Offers extensive links to sites offering corporate information in over 80 countries.

The Council for Australian Arab Relations - Provides examples of what to expect in meetings in the Arab world. Also check out the business guides on the UAE, Saudi Arabia and Qatar.

Federation of International Trade Associations (FITA) - Provides links to information on a wide range of international trade and import/export topics. It also has a trade leads service.

Global Edge - International business portal providing country guides, links to global information resources and a discussion forum.

IBIS World - Produces reports on a range of industries.

Industry Canada - Has an excellent portal which guides you through company and industry information in grid format, most of it supplied by the US government.

Market Research - Covers a huge range of topics and also 'slices' its reports. This company draws together reports from a wide range of respected research organizations, but it can be expensive. Spend time searching the site.

The Research and Markets Company - Sells market research reports covering major products and markets.

The WA Department of Industry and Resources - A good market research checklist.

Statistics research

FAO - For food and agricultural statistics the Food and Agriculture Organisation database is first class.

United Nations - The statistics division of the UN compiles information from all over the world.

World Bank - Features current world development indicators and statistical benchmarks.

Getting Financial Assistance

ANZ - Has an Export eBook which has very useful information.

The following websites provide information related to gaining financial assistance when exporting. Take the time to visit any that you feel are relevant to your situation.

What type of funding do I need to begin exporting?

Check out the websites of the major banks and look for services for exporters. Many of the websites also have good guides and manuals on export finance:

Commonwealth Bank of Australia - Offers an Exporters Handbook which you can download in PDF format.

National Australia Bank - The NAB produces the publication 'Finance of International Trade' which covers payments, export financing and foreign exchange.

Westpac - Has a publication 'Exporting for Small Businesses', which you can download as a PDF file and select 'Export services' from 'International' in the Main menu.

Which agencies can help finance my export business?

Government Export Agencies brochure - A guide to Australian government support.

Australian Government Portal - Provides a good entry point for government agencies offering financial support for business development and export marketing. Most state and territory governments offer financial support programs - check their websites.

Ausindustry - Offers a range of grant programs that can help your business in its formative stages - one scheme is 'Commercial Ready', which supports innovation and its commercialisation.

What other financial techniques do I need to know about?

Atradius - A major credit insurer with Australian operations.

QBE - Offers credit insurance.

Factoring companies offer a range of services by discounting current receivables to provide cash for business expansion, particularly for new exporters. Learn more about factoring atwww.factors-chain.com and www.bcfg.com.au.

Freight and Logistics

The Australian Freight Councils Network - Provides references to state and territory-based freight organisations covering both air and sea cargo. Check the websites of members for information on services.

The following lists contain a number of useful websites that will help you when researching freight and logistics in terms of exporting. Take the time to visit any that you feel are relevant to your situation.

Where do I start to learn about shipping?

Australian Trade and Shipping - Provides useful background information, as well as data on the company's services.

The Logistics Association of Australia - Provides some useful background information on logistics.

What do all these shipping terms mean?

Australian Export Online - You will find an excellent explanation and a tutorial on Incoterms at this website.

International Chamber of Commerce (ICC) - Has a detailed review of Incoterms.

How do I negotiate the best freight rate for my cargo?

Cargo Log - Offers to send your enquiry to a group of selected freight forwarders for a quotation.

Isn't export documentation complex?

The Australian Institute of Export - AIEX provides hands-on training in export practice.

Finding a freight forwarder

Australian Export Online - Has a listing of freight forwarders.

Sensis Australia - Sensis provides access to a range of databases, including the Yellow Pages, which lists about 1000 freight forwarding companies, many of them offering international services.

Tradegate - This site has details on a range of export transportation services.

Australian Institute of Export - Practical courses are provided by the Australian Institute of Export.

Government Programs for Exporters