Make the Leap to Exporting
By Timothy Burley
There are many important reasons to export, among which are: Increasing and diversifying sales, expanding markets and spreading risk; taking on foreign competition on their turf; ensuring global adaptability of products and services, and extending product life cycles by entering less developed markets. Today’s technologies allow a company of virtually any size to provide products or services on a global basis. This is particularly so with respect to business to consumer retail sales, and often will not involve any more complexity than making domestic sales. However, in other instances the complexity can increase rapidly. Many companies will find the need to develop new skills and resources to successfully export. The remainder of this article will focus on assessing your preparedness and identifying some of the resources needed to make export and effective and efficient business strategy.
To begin you should make an assessment of your Product/Service and Organization in terms of readiness for export. You may already be experiencing success with exporting products or services. If so, you will still want to undergosome kind of assessment as a means of understanding why and potentially increasing your export sales. Assessing Product/Service readiness begins with asking some basic questions:
• What drives your success in the markets you serve?
• Do similar demands exist in foreign markets?
• What are the unique features of your offering?
• What differentiates your offering from competitors in target markets?
• Product Life Cycle, where are you in each of your target markets?
• Will you have to and can you modify your product/service to make them fit for foreign markets? For example, changing electric cords to fit foreign outlets or substituting ingredients to conform to foreign regulations and tastes.
Assess the cost of making your product or service ready. Once you are familiar with the possible cost of these changes, you’ll then have an idea of what level of sales will be needed to justify any changes.
Organizing for export and assessing your organizational readiness is driven by the added complexity of dealing with new jurisdictions, trade regulation, and taxation. The key question to answer is: Is someone designated and able to handle export sales? This opens the door to the development of specialized skills needed for export. For example, dealing with shipping documents, service and/or training associated with your product, payment terms, freight costs, etc., all will require special knowledge. What is the resource commitment you are ready to make to support export sales, and how will you organize these resources? Will you use employees, agents, outside service providers? The answers probably involve a combination of these, but it is important to recognize, before beginning, what it will take and have a plan that best aligns these resources.
Next you will want to do some market research to ensure you focus your energy and resources on the market segments that have the highest potential for sales and return on your export resource commitment. You should have a clear definition or segmentation of the markets you will serve by Geography
(countries/regions), Customer (Commercial/Government/Private/Component/Resale/End-user), and which Distribution Channels (Wholesale/ Retail/ Own sales force/ Commissioned agents/ Representatives). And finally do some Competitor Analysis. Know what you are up against, and what differentiates you in the market place. You may already have some export business that has developed naturally or on orders generated over the web. It’s OK to go with momentum, but usually worthwhile to do some basic market research.
Here are some resources to assist you in the above:
o Free sites:
o Fee based sites:
Next you will want to commit some time to develop and document your Strategy and Market Plan. Space does not allow for elaboration on what could go into such a plan, here is a good outline: http://export.gov/exportbasics/eg_main_017456.asp to get started. Some of the key areas you will want to consider include:
• Product/Service Pricing and Payment Terms. Trade finance and banking service providers will be key here.
• Sales Generation, what means will you use
• Promotions, including advertising, trade shows, technical and training seminars.
• Representation, use own employees, or dependent/independent agents?
• Logistics and Distribution, freight forwarders and common carriers will be able to provide the insight and expertise needed to understand and manage elements such as EX/IM regulation both domestic and foreign, and the added documentation requirements.
A well thought out and documented plan enhances your likelihood of success and provides a useful map to keep you on track.
Finally, a word about Incentives and Support for export businesses; federal tax law has certain incentives that are designed to incentivize and allow U.S. companies to compete in the global market. At a basic level there is the IC/DISC, a creature of U.S. tax law, that allows an exporting company to pay a tax deductible commission to an IC/DISC, a related domestic entity. The IC/DISC does not pay tax on the commission income and distributes its income as a qualified dividend to shareholders that are taxed at capital gains rates. If you are ready to establish a presence in a foreign jurisdiction it is possible to defer or avoid certain U.S. federal and state income taxes with proper transaction and legal entity structuring. This planning is complex, and requires you consult with both U.S. and foreign jurisdiction tax professionals. These are but two examples of tax efficient structures that make exporting tax efficient.
Both the U.S. and state government provide support services. I have listed some above; here are more for your quick reference. US Commercial Service http://www.trade.gov/cs/. This is a branch of the US Department of Commerce.
Exporting can significantly enhance a company’s revenue and profitability if planned and managed effectively. This article is intended to provide an outline and some guideposts to help companies successfully plan for export. By Timothy Burley, Partner, WeiserMazars LLP
Originally published by New Jersey CPA, March/April 2015