Make the right moves to succeed at exporting
California is a perennial top exporter, accounting for 10.6 percent of total U.S. exports in 2013, according to the U.S. Census Bureau, with Mexico, Canada, China, Japan and South Korea being the top destinations for the state’s goods. California’s export trade — more than $168 billion in 2013 — is highly diversified, with 11 different major categories of goods each accounting for at least $1 billion in exports during the third quarter 2014.
Is it time for your business to get in on the action? Before answering, consider that 96 percent of all consumers live outside the United States, and two-thirds of the world’s purchasing power is in foreign countries. Also, according to a study published by the Institute for International Economics, U.S. companies that export not only grow faster, but also are less likely to go out of business than comparable nonexporting companies.
How to make the right call
There are many factors to consider when deciding whether to begin exporting. Among the elements you’ll need for success are an international marketing plan, sufficient production capacity, adequate financial resources, knowledge of foreign import regulations and cultural preferences, an understanding of how to ship overseas — such as identifying and selecting international freight forwarders — and a familiarity with export payment mechanisms, such as letters of credit. Find out more about what you need for success in 7 helpful tips to take your company global.
If you’re ready …
If you decide to dip a toe into international trade waters, developing a detailed and thorough strategy will be important to your success. Take these six steps:
1. Evaluate your product’s export potential. If you have strong sales in the domestic market, chances are good that it will also sell in markets abroad where similar needs and conditions exist. If U.S. sales are declining, good export markets may still exist. For example, say your product is losing market share here to more technologically advanced products. Other countries may not need state-of-the-art technology and may be unable to afford the most sophisticated and expensive products.
2. Identify key foreign markets for your products through market research. To begin, it’s smart to narrow your focus to no more than two or three markets. Start by obtaining trade data to find out which countries import your type of product. TradeStats ExpressTM offers broad information, and USA Trade® Online provides greater detail. Then review market research reports from the U.S. Commercial Service Market Research Library to evaluate market openness, tariffs and taxes, distribution channels and more. Analyze a few fast-growing markets over a period of three to five years to find the most statistically promising markets for further assessment.
3. Evaluate distribution and promotional options and establish an overseas distribution system. You’ll have to learn about packing, labeling, documentation and insurance requirements. Many exporters rely on international freight forwarders, who can advise you on freight costs, insurance, port charges, consular fees, freight handling fees, costs of special documentation and more. A freight forwarder can also prepare and file required export documentation, advise you on the most appropriate mode of cargo transport, reserve the cargo space and make arrangements to pack and load the cargo.
4. Determine export prices, payment terms, methods and techniques. Pricing will depend in part on your objectives — are you attempting to penetrate a new market, seeking long-term market growth or looking for an outlet for surplus production or outmoded products? Consider costs, market demand and competition in light of your objective in entering the foreign market. You must also take into account additional costs that are typically borne by the importer. They include tariffs, customs fees, currency fluctuation, transaction costs and value added taxes (VATs). These costs can add substantially to the final price paid by the importer.
5. Familiarize yourself with shipping methods. During the period of August through October 2014, 44 percent of California’s exports were shipped by air. Seaports handled 31 percent of the state’s export goods, while the remaining 25 percent traveled overland by truck or rail to Canada and Mexico.
6. Work with an expert on export financing. Trade financing can be complex, but working with a banker who has experience helping businesses getting started in exporting is a great place to start. California Bank & Trust's International Banking experts will assist you to protect your interests so you can extend your global reach.