Own Business: International Trade

The notion that international trade is only available to large companies is not entirely true. Often, for small business owners, international trade presents a global opportunity.

But before you get involved in trade internationally, extensive research needs to be done. The first stage is research at the macroeconomic level. It will help you to exclude some countries immediately, and save you time. It is necessary to study the country's gross national product, climate, trade statistics, political structure and stability, economic climate, and so on.

The second stage is a case study. You must identify the markets with the greatest potential for your products or services, identify competitors, which modifications of the product or service are suitable for those markets, the strategy for entering the selected market, and the most efficient way to operate.

Foreign trade requires an assessment of the same basic factors that you consider when planning a local business. The difference is that you have to do more research – because of differences in culture, language, individual purchasing power, and so on. Differences in climate, personal incomes and standard procurement patterns, national traditions and religious preferences affect the need for goods and services. As a result, you may find a relatively untapped segment that will ensure a successful start.

Marketing research

The next step in the research process is to research the marketing environment. In the course of this research, you will be able to decide how to sell your product.

If you plan to export goods, you must find out how the goods are distributed, the types and availability of means of transportation, freight costs, means of packaging and warehousing, availability of advertising media and advertising media, means of sales promotion, publicity, and other means of sale. Don't forget to check tariffs, quotas, and non-tariff barriers, as well as possible government trade restrictions. Be sure to familiarize yourself with the legal system of the country in question, and other circumstances including contract law, trademark laws, patent law, taxation, commercial law. It is necessary to be aware of currency restrictions and restrictions on foreign investment and the working conditions of foreign companies. You should also assess your company's potential to expand in the specified territory.

Experts recommend that when assessing the compatibility of your product with a given foreign market, you should consider:

- The product standards of the country, such as quality, safety and technical standards.
- The technical specifications of your product must be compatible with goods manufactured in the local market.
- the life cycle of a given product - you need to understand where your product fits this cycle; A product that has reached the level of maturity in Russia can find a new life in the foreign market.
- Price: The cost of doing international trade can force you to increase the price of a product in order to realize a profit – this can be true for both goods and services.
- Alternative uses: foreign needs may be different from domestic needs, and may require changes in the properties of your goods.

Before venturing into a foreign market, you should research the potential use of a given product in a given country, and evaluate factors such as competition and compatible product lines, brand advantages, customs, packaging and marketing methods, all of which affect buyers' preferences.

To succeed in the international market, you should plan to work in international trade for at least 3 to 5 years, and even better, for a longer period.

Export or Local Production

Most companies trading in the foreign market prefer exports. This implies less risk, requires less investment, and implies less influence from the external political and economic environment.

The benefits of local production, on the other hand, include lower production costs such as the cost of labor and materials, the elimination of barriers such as tariffs and import quotas, as well as tax credits, financial assistance, and government protection.

Export Distribution Channels

Once you've decided which way to go, the next question is the distribution method.

There are two channels available to you: direct and indirect. In the indirect method, you hire a foreign representative who acts as your intermediary. This is the company or person responsible for the execution of the actual export. Therefore, you do not have direct contact with the buyer in the foreign market and do not accept any responsibility for the transportation of the goods to the designated market.

The direct method requires you to take care of overseas sales yourself, which means that you are also responsible for shipping the goods. When using the indirect method, you can choose a channel, i.e. an export broker partner company, an export management company, or a trading company.

Export brokers are usually located inland and specialize in a particular type of commodity. Since they own the product, they usually manage the pricing and marketing strategy. They also take on credit risk.

Export management companies serve as an export department for several manufacturers of non-competing goods. Their services include overseas market research, selection of foreign distributors, displaying your products at trade shows, taking care of shipment, preparing and advertising commercial materials, and advising on overseas patents and trademark requirements. When choosing an exporting company, you should take into account the number of customers served by this company and the volume of their sales, the type of client, the reputation and quality of management, its financial condition and the degree of coverage of world markets.

Trading companies combine some of the qualities of brokers and exporting companies. Trading companies buy goods, accept goods on consignment, or work as commission agents for buyers. Trading companies usually pay in cash, and provide credit to customers. You can choose from a large number of European, Korean, Japanese, and American trading companies.

Direct selling to foreign markets is more difficult, and involves either direct mail-order sales, where you send catalogs, brochures, or other materials to foreign retailers, or direct sales to customers through advertising in magazines and various publications circulating abroad, in local media, or via the Internet.

Another way is to use foreign representatives or distributors. They usually work on commission, do not accept any risk or responsibility, and are under contract for a certain period of time. A foreign distributor buys a product at a significant discount, assigns a trademark, and then sells the product. A sales representative, on the other hand, doesn't buy a product but places orders.

Working with distributors or representatives has advantages. They often provide you with the initial contacts you need most, they have already established business relationships with buyers of similar goods, and they know the local market.

Market Testing

Regardless of previous research, you still need to make sure that your item will be accepted overseas. And while there's no substitute for actually selling, there are a few testing methods that will allow you to modify your item, its packaging, or change its price if necessary before moving on to a broad sales program.

The first of these methods is sales missions. There are three types of them.

Specialized sales offices that connect you with potential buyers, agents, and distributors.

Workshops that include one or two days of technical presentations by a team of industry representatives, and are accompanied by appointments and commercial activities similar to those of specialized sales representatives.

Industry-organized, government-approved trade representations that are organized by trade associations, chambers of commerce, and other groups.

The second method of trial implementation is trade fairs and exhibitions. Hundreds of general and specialized international trade fairs and exhibitions are held every year. Most of them are open to any company in a particular industry. Participating firms can benefit from extensive assistance from the organizers. In exchange, they pay an agreed amount that reimburses the cost of the services they used.

The third method is catalog exhibitions and video catalog screenings. Participation in the exhibition of catalogs does not imply the presence of a representative of your company. You send product catalogs, commercial brochures, and any other materials that are presented at exhibitions held in embassies and consulates. At video catalog exhibitions, visitors view video illustrations of products in the process of use. Such exhibitions are a great method of promoting equipment and other goods that are expensive to move.

Pricing & Promotion

The next important stage of your strategy is pricing and developing a go-to-market plan.

When setting a price abroad, you need to consider the following factors: competitors, costs including production, packaging, transportation and handling, advertising and selling costs, the amount of demand for your product, and the ratio of demand to price; and the maximum price at which the market will buy this product. There are three ways to set a price.

• Internal valuation, using the internal price of the item as a basis, and adding export costs, including packaging, shipping, and insurance.
  - Marginal Cost Estimation - Determining the cost of the principal part, which takes into account the costs of production and export sales, and then adding costs to achieve the desired difference between cost and selling price.
  - Cost modification that lowers the quality of the product while using cheaper materials, simplifying the product or changing the marketing program.

Transportation

Overseas transportation implies types of transportation, packaging requirements, documentation - all these aspects are completely different from the conditions of the local market.

Methods of moving goods to the foreign market fall into three categories: sea, air and land.

When choosing a method of transportation, you should consider the characteristics of the item - such as size and value, purpose, required speed of delivery, and cost. You should also consider compatibility with other elements of your distribution system: packaging, warehousing, inventory, and handling. The largest tonnage is usually transported by water.

Your shipment must be insured. Marine cargo insurance is provided by either the buyer or the seller, according to the terms and conditions of sale. Entrepreneurs are increasingly opting for air transport – especially manufacturers of high-tech products, exporters of perishable products and manufacturers of equipment to replace failed parts.

Regardless of which mode of transportation you choose, you should make sure that the goods are well packaged to protect them from dangerous shipping conditions. When planning your packaging, you should keep in mind the possibility of accidents, cargo, volume, humidity and other climatic conditions, the possibility of theft, and the specific requirements of the customer. As a consultation, talk to the representatives of the marine insurance company, or with the freight forwarder. They are the most knowledgeable about all the special requirements of a given country.

The last issue is the documentation. Without packing slips, bills of lading, export declarations, and export permits, your shipment will not pass through customs. In addition, many countries require a certificate of origin of goods, which indicates where the goods were produced. These documents facilitate customs inspections and are used to establish a preferential tariff for import duties.

Financing

Just like working in the domestic market, working in the international market requires capital. You'll need funds for inventory, accounts receivable, and an advertising campaign. In addition, if you intend to open a foreign representative office, you will need capital for the associated operating costs.

Most small businesses operating abroad are forced to apply for external financing.

To get started, you need to choose a bank. When choosing a bank, you should find out what international services it provides. When trading abroad, services such as short- and medium-term export financing, international credit and commercial information, commercial letters of credit and foreign exchange services are very useful. In addition, many banks conduct market surveys and provide lists of prospective foreign distributors. Many banks have their own international departments or an official responsible for processing international transactions. Banks that are not engaged in foreign trade usually have correspondent relations with larger banks. If you are considering a business abroad, the bank can provide invaluable assistance.

Export Plan

The final stage of your preparation is a strategic export plan. Just like a business plan for a domestic business, an export plan is very important for international business.

The export plan includes a detailed description of your market and products, goals and strategy for achieving the market, budget, organization and staff, and methods for evaluating the work. The plan should include short-, medium- and long-term plans, time constraints, and work controls. The plan should highlight:

- the country in which you are going to work - the go-to-market
strategy - the stages of work
and the deadlines for the completion of the stages.
- Budget based on available funds.