Maybe you have figured out a better way to manufacture a part, or you’ve developed a product that meets the needs of the medical industry. The product has already proven to be successful domestically, so now you’re ready to expand abroad. A word of caution: don’t move too quickly. You’ll need to do some preplanning.
It’s important to create a comprehensive strategic plan for exporting products overseas. This plan can help you overcome legal and practical obstacles in new markets, identify the main costs of exporting, and plan for growth.
While the exact details will vary from industry to industry, here are six basic steps to get started.
- Identify the markets. How should you determine which countries make sense for your product? Do your homework. Market research will indicate the countries that are likely to be the most profitable, what the current trends are and whom your main competitors will be if you make inroads.
You should be able to find most of the resources you need online. For example, the U.S. Department of Commerce has resources to help with manufacturers who want to export, such as “A Basic Guide to Exporting." At the outset, concentrate on the country or a handful of countries that look the most promising. Don’t automatically target only the largest countries, although some of those will probably be logical candidates. You may also find promising niches in smaller countries or remote locations where there will be far less competition.
- Analyze the target markets. Are there any other factors that could affect your search? Consider possible logistical and/or sociopolitical complications. For example, significant export barriers, such as export controls, could hamper your capability. It is essential to understand how particular foreign markets work with regard to things like import duties and tariffs. Given the constantly changing tariff wars, be mindful of how current or likely retaliatory tariffs may affect your export(s). Laws in other countries may present unique legal challenges. Finally, check with customs offices in targeted countries for any potential import restrictions. You may have to comply with a new set of regulations you have not previously encountered.
- Locate qualified buyers. Assuming you determine that it’s viable to proceed with your export, your next step should be to search for buyers within the foreign markets you have identified. To this end, follow the four Cs.
- Conduct an online search. Supplement what you learn from Google or other search engines by researching industry journals.
- Consider going to trade shows. Get the word out that you will be marketing your product internationally. Similarly, attend seminars where you can learn more about exporting products.
- Contact industry associations. Use your contacts within the industry. Frequently, associations will provide valuable lists of member companies that have had success with exports.
- Consult with business advisors who have expertise in helping U.S. businesses expand overseas. For example, what is the best tax strategy? Are there any tax credits of which you can take advantage?
- Set the “right” price. This is always a tricky issue, which can be especially difficult when you’re dipping your toe into foreign markets. Take into account all the costs associated with exporting the product. Some typical costs are:
- Fees for market research
- Production expenses, including adaption costs
- Freight and insurance
- Wholesale and retail markups
- Travel expenses
- Commissions for foreign representatives
- Import duties
Alternatively, you might base the product price on market demand, determining what consumers are willing or able to pay. This may require some adjustment after the initial foray. In addition, if there are strong competitors, you can compare your pricing to theirs. Does it make sense for you to undercut their price?
Keep in mind that each country has unique invoicing and payment regulations. Without understanding how these work, it can be a nightmare to get paid.
- Choose Your Distribution Channel. You must do some advance planning to determine the distribution channel you will use. For example, will you sell direct to the customer? Or, would it be more advantageous for your business to use a sales distribution agency? Some manufacturers also use a reseller to most effectively get their goods to the end user.
- Establish the payment method. The best exporting plan in the world won’t do any good if you don’t get paid in full and on-time. And the risks for nonpayment increase in foreign markets where buyers are often halfway around the world. So, consider these options:
- Require cash in advance.Your company receives payment for the goods, usually by wire transfer, or by check or credit card in advance of the shipment. Once you’ve received the money, you can complete shipment.
- Use documentary letters of credit: This compromise method is common in international business transactions. It requires banks to receive and check shipping documents and guarantee payment.
- Provide an open account. If the buyer has impeccable credentials and has been thoroughly checked for creditworthiness, you might provide shipment prior to payment. This usually is a last resort.
Depending on the legal structure of your business, you can also take advantage of specific tax incentives on your export income. For example, there is the Foreign Derived Intangible Income (FDII) deduction that was established as part of the 2017 Tax Cuts and Jobs Acts. This provision provides incentives for U.S. companies that sells goods or provides services to foreign markets. There is also the Interest Charge Domestic International Sales Corporation (IC-DISC), which acts as a “selling agent” for your operating business. This underutilized tax incentive is a separate legal entity that earns a commission for selling your products in foreign countries.
As you can see, there may be more exporting than you initially thought. This is a good time to lean heavily on your business advisors.
For more information about exporting your products, or other ways to optimize your manufacturing business, please contact Allan Peiser, CPA, at 214-365-2503. Learn more about the Manufacturing and Distribution Services Group at Goldin Peiser & Peiser.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.