Addressing the challenges of becoming an international enterprise
The financial, logistical and marketing resources companies need to become an international enterprise have been in place for decades. However, if your company hasn't been active in international trade, you might feel lost when you look to "go global." Here are a few initial tips in areas where US exporters often need support.
A broad spectrum of resources exists to help American companies identify foreign buyers. They range from US government agencies like the International Trade Administration's US Commercial Service (export.gov (opens in a new tab)) to American Chambers of Commerce based in foreign countries, to export management companies.
Tariffs and trade regulations
Determining tariff obligations can be a multistage process. For example, the valuation of goods as the basis for tariff calculation isn't as simple as just arbitrarily assigning one based on your price. The process must conform to a country's regulations based upon the World Trade Organization's "Customs Valuation Agreement." Goods sold to customers abroad also can be subject to multiple charges. The European Union, for example, charges both a value-added tax (VAT) plus an import tariff. Bottom line: A clear understanding of these obligations is essential to building an international expansion strategy.
An important consideration for exporters trying to win a sale is the allocation of currency exposure. For instance, if a sale is priced in US dollars, the foreign purchaser bears the currency risk. If the value of the buyer's currency drops relative to the dollar, more units of the buyer's currency will be required to acquire the requisite amount of dollars to pay the purchase price. Banks work with exporters to identify and implement the most efficient currency hedging mechanism to eliminate currency risk from the sales equation.
Logistics and shipping terms
Shipping costs and related insurance costs can be significant, so special consideration is required to keep the total cost of the transaction competitive—whichever party bears that burden.
Securing working capital
International sales typically have greater working capital requirements than domestic sales, and banks understand this. However, international sales require a higher level of analysis, and before offering financing, banks will have a number of questions unique to foreign sales—everything from "How reliable is the buyer?" to "What are the political risks?"
Assurance of payment
Payment security services with or without support from EXIM Bank and the Small Business Administration are widely used to reassure exporters they will indeed receive payment according to contractual terms. The three most common mechanisms are the letter of credit, documentary collection and credit insurance.
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