Andy Reinke – If you’ll recall from my previous post, I wanted to share with you the process of one or two ISBDC clients going through the Core 8 steps from start to finish. While we’re still searching for the best export candidate or export newbie, there have been a few client cases that fix well for this blog. What I thought I’d do is to list the Core-8 steps briefly, explain in a sentence or two the relevance of each Core Step, then move onto the case situations we’ve encountered, referring to the Core Step touched on in each case.
Core-8 Steps to Export Development:
Core I – Export Readiness Assessment – A series of questions for consideration to determine your firm’s level of internal competence, readiness and willingness to take on the foreign market.
Core II – Foreign Target Market Research and Identification – the task of performing the due diligence in conducting primary and secondary research to identify the top few foreign market s to proactively go after for exports.
Core III – Export Benchmarking – This step involves contacting vertically or horizontally integrated manufacturers of similar, complementary products to share export market information and consider other successful export strategies.
Core IV – Foreign Market Representation -. Through various sources, identify and select the most appropriate foreign distributor, and ask a serious of questions intended to ensure appropriate fit for foreign representation.
Core V – Promotion Strategies – Determine the best method to pursue the foreign market – direct export in which you maintain greater control, direction and knowledge of your exports, or indirect, in which an intermediary firm acts on your behalf to develop and maintain the foreign market, allowing for what often is a less risky approach to export development. Listings of trade shows, appropriate trade journals and other resources are reviewed.
Core VI – Assembling the Export Team – Creating an Export Team comprised of various departments inside your firm that may be impacted by the pursuit of foreign markets along with a few external players like a bank and freight forwarder are crucial to ensure a successful export program.
Core VII – Assessment & Adjustment – As your export program unfolds, there will be the need to tweak, alter and amend as information from the foreign markets targeted impacts your program. When, not if this happens, gather your internal export team (those departments in your firm impacted by pursuit of exports), to present the status of your export program on a regular basis, first on a monthly basis in the short term, then quarterly or semi-annually once the program gathers momentum.
Core VIII – Just Do It – Export – This last step seems like an ad for track shoes, but it’s an important step. Many companies begin an export program during times of domestic economic uncertainty and then take their foot off the export pedal once domestic economic strength returns. This is a grave mistake. Maintain your export efforts regardless of the health of the US economy, treating your export customers as importantly as those in the US. Jump in, ask the ISBDC for help along the way as necessary.
Now to the fun part – the actual case studies!
Our first example is from Fish Face Photo – an Indianapolis manufacturer of photo booths. They contacted our central Indiana ISBDC’s office with specific questions about the documents and requisite steps involved once an order has been put through by a foreign customer. A review of Core I, the Export Readiness Assessment, would reveal a lack of knowledge in key areas of international banking and freight cost identification, export tools that would be required to affect this shipment.
We met with Fish Face Photo at their Indianapolis office to discuss and review the order they had in hand from Spain. We quickly realized that a proper proforma invoice (similar to a domestic quote), to include the proper Incoterms (internationally recognized terms of sale) was required to move forward. But before we could do that, we needed to identify to right HS Code so the product could accurately be entered through customs once it reached Spain. HS Codes (addressed under Core II of the ISBDC webinar on Export Development) are an internationally recognized 6-digit numerical system that defines each product traded between all signatory nations to the World Trade Organization – WTO.
I was surprised to learn the Spanish customer had already selected an HS code for the photo booth to be imported. A quick review proved that that proposed HS code was not accurate, defining the product as metal –framed furniture, wherein the product actually contained no metal. Probably not a big difference, but the HS code we identified with the assistance of the US Census bureau in Washington was more accurate to the nature and purpose of the product. Since it’s advisable to stick with the same HS code for the product exported regardless of the export destination, it made sense to go the extra mile to make certain the product was properly identified from the get-go, and could enter the Spanish market without a hitch (at least in terms of duty assessment).
The next task was to assemble the proforma invoice with incoterms to reflect the Spanish customer’s willingness to prepay before shipment, on an Ex-Works basis (the incoterm which is the equivalent to FOB Factory). Fish Face Photo was lucky their first export, as prepayment on an Ex-Works basis is about the most risk-free transaction possible for an export. We worked with Fish Face Photo to alter their own documents to include the necessary international lingo to make the shipment legitimate and understood on both sides of the Altantic. The documents comprised a commercial invoice (similar information included on the proforma invoice, a packing list which I use as the same information for the commercial invoice minus any reference to price, and the filing of the Shippers Export Declaration with US Customs done electronically through the forwarder in charge (this is your product’s Schedule B is required).
There are 11 incoterms possible for use in international trade, according to the 2010 version of Incoterms released this past January. Under Core II and at the end of the Core-8 Steps to Export Development (found on the ISBDC’s Exporting FAQ Page) you’ll find references to Incoterms, proforma invoices and how to search for the difference between your products Schedule B and HS codes.
Next up – RV’s from Northern Indiana and Dog-Chews from Central Indiana.
Andy Reinke is the President of Foreign Targets, Inc. (FTI) an export management company creating and managing proactive export programs for small and medium sized manufacturing firms. This is achieved by utilizing a proven methodology: FTI’s Core-8 Steps to Export Management. Read more about export in theISBDC’s Exporting Your Products and Services FAQ Page.