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1. Is Your Company Ready to Export?
The first step in determining whether exporting is a viable option for your company is to review the strength of your business at home. Successful exporters are generally those with an established base in Canada. They have reliable production, excellent reputations for quality, and products that are in demand in the domestic market and therefore, potentially in international markets. However, some highly specialized companies that do little or no business in Canada have also found a niche in foreign markets.
1.1 Evaluating Your Strengths and Weaknesses
Any Ontario company considering entering the export market will have to assess its strengths and weaknesses. Consider these eight key aspects of your business:
1.2 A Note to Service Exporters
Given today's computer technology and telecommunication linkages, there are many very small service firms that are successful abroad in carefully selected niche markets. But there are some different factors that service exporters need to consider to ensure export success. Because service exporting usually involves the movement of personnel across the border, you need to become very familiar with immigration regulations and work permit requirements. You need to build credibility in the foreign market so that customers there will take a chance on your service. Find opportunities to showcase your expertise, network with local contacts, establish a profile in the media–in general, become visible. At least initially, you need to be building the profile of your firm, rather than focusing on advertising a particular service offering. For professional service firms in particular, your top professionals have to do the marketing–not a sales rep. For many service exporters, attendance at trade fairs will not be time-effective. Instead, you may need to find conferences, etc., at which to speak and build visibility. In order to feel conveniently accessible to customers, many service firms need to establish some form of a local presence. Remember that services can be exported in several different ways:
1.3 Export Readiness Evaluation
To help determine your company's potential for expanding into the export market, ask yourself the following questions. If you can respond positively to these challenges, then you are ready to start planning to export! Your Current Position/Commitment:
What is your position in the Ontario market? Are foreign markets necessary for your company's growth? What is your scope for expansion? Is your company prepared to make the commitment of money and people for the often long-term development of export markets? Exporting is not just a stop-gap for a slow domestic market. Commitments of resources should extend for a two-year period. Three years would be better and one is the absolute minimum. Will your export manager be able to call on the support and cooperation of other key individuals in finance, production, technical support, and shipping? Is everyone in your company prepared to work toward the same goals? People Resources:
Do your marketing and technical staff understand how to do business in foreign markets? Do your professional/technical staff have the necessary certifications in the foreign market? Will professional staff need to be licensed locally? Do you have access to additional qualified labour? Do you have Canadian support staff capable of speaking the relevant foreign languages? Are your marketing, technical staff and senior executives prepared to spend days, or even weeks, away from home? If not, is the company prepared to train or hire people to work in new markets? Is your senior management prepared to have departments work together to support an export initiative? Marketing Expertise & Resources:
If you are a small firm, do you have staff with marketing expertise? Is your senior management and/or marketing staff skilled at marketing in other cultures? Financial Resources:
Do you have excess growth capital to use for foreign market development? Do you have enough financial resources to manage professional fee withholds at source (for tax reasons) if applicable? Are you financially equipped to increase production significantly? Product Suitability & Certification:
Is your product suited for export? Can it be adapted easily to meet different cultural preferences? What are the characteristics of your product that provide it with a marketing advantage? Can your goods be easily shipped? Can your service be delivered easily abroad? Does your packaging meet international requirements? Will you need to redesign your product (packaging, manner of delivery, etc.)? Will you need to translate materials? Is your product cost competitive? Is your quality control up to international standards? Are you ISO (International Standards Organization) certified and approved? Can your product be modified to meet mandatory technical standards in foreign markets? Will your product need to be certified by a foreign agency before being allowed into the market? Production & Communications Resources:
Can you increase production to meet a surge in demand? Will your production facilities need to be certified by a foreign agency before your product is allowed into the market? Can you expand your telecommunications capabilities easily? Do you have a fax machine and email capability? Do you have a strategy for accommodating different time zones and vacations when using the phone?
2. First-step Export Opportunities
When thinking of doing business beyond Canada's borders, the best place to start could be next door. The United States is Ontario's largest market for good reasons. Under the Free Trade Agreement, the U.S. market is more accessible to Canadian exporters. As part of the NAFTA, exporters might also consider exporting to Mexico. This could prove an important first-step to approaching other Latin-American markets. As trade agreements are constantly changing, so exporters are well advised to stay on top of the latest developments.
2.1 Doing Business in the United States
It makes good sense to consider exporting to the United States. Many exporters find this market an excellent opportunity for learning about the export business. As we share the same language and a similar culture, breaking into this market may be much easier for some companies than taking on cultural and language differences as well. The United States is the world's largest and richest national market. Our laws and customs are similar. Today with the Free Trade Agreement and the North American Free Trade Agreement, we have access to the best trade opportunities in the world.The FTA/NAFTA provides Canadian goods exporters with a cost advantage over offshore competition equal to the U.S. tariffs that these competitors have to pay. Political and Cultural Distinctions
The U.S. market differs in structure from Canada, with four levels of government (Federal, state, county, municipal). Entrepreneurship is strong, with a greater separation between private and public sectors. With a portion of the American government being elected every two years, Canadian exporters should be very aware of the American political issues and their impact on specific economic initiatives and general openness to dealing with Canadians. The U.S. market is very competitive; these customers are used to lots of options, excellent quality assurance, convenient access and rapid response times. Executives are often quick to reach decisions and may be ready to "make a deal" sooner than Canadians expect. U.S. Marketing and Communications Tips
Ontario companies may find it of strategic benefit to have a U.S. telephone number with a remote call forwarding feature to your office in Ontario or an 800 or 888 number. These services can project the image of a local presence in the market without the cost of a local office. There are also services available that provide a complete range of business support services at reasonable cost such as mini-offices, a local business identity, corporate representatives, (for the Certificate of Authority) warehousing and shipping. The competition for attention in the U.S. market is intense. Advertising and public relations can help promote Ontario products in the United States through trade and consumer magazines and other media. Care must be taken to select media that reach the required target market and that the product is presented as being as easy to buy as a U.S. product. Tax Implications
Canadian firms should be aware of the U.S. tax implications of doing business in the United States. Generally, if you are exporting and do not have any physical presence in the United States, you would not be subject to U.S. income tax. Also, be aware that Canada and the United States have a federal tax treaty that basically gives credit for taxes paid in the other country on taxes owing in the country of residence. If a Canadian exporter is deemed to have a "U.S. establishment," the firm will be liable for U.S. federal corporate income tax. Exporters need to be aware that the definition of establishment could cover a warehouse or distribution centre if there are employees. If you are invoicing from a U.S. address, you will need a Certificate of Authority (or be subject to a substantial fine) that names your local corporate representative. Such a representative is a legal point of contact, not necessarily a marketing rep.You need to verify such requirements with the nearest Canadian Consulate. The Canada-United States tax treaty provides firms with many advantages and you should get some advice from a U.S. tax specialist.
2.2 NAFTA Implications for New Exporters
The North American Free Trade Agreement (NAFTA), which came into force January 1, 1994, establishes one of the largest free trade areas in the world. The overall objective of this Agreement is to extend the trade and investment enhancing provisions of the Canada-United States Free Trade Agreement (FTA) to Mexico. It is possible that the agreement could eventually form part of a wider trade initiative that would include most of the countries of the western hemisphere. The Chile-Canada free trade agreement, signed in 1996, was an important step in this direction. Under NAFTA, Canada, the United States and Mexico will accord "national treatment" to imports of each other's goods and services and to investors, meaning that each country will treat the goods and services of the other two partners as if they were domestically produced and treat foreign investors as if they were nationals. Here is a brief listing of key areas of benefit to exporters under this agreement:
Under NAFTA, there are many new rules governing border crossing procedures, rules of origin requirements and other customs procedures, standards and government procurement.
2.3 Exporting to the United States under NAFTA
Entering the United States
Beginning with the FTA, the two governments have been streamlining the process for temporary business entry into the United States.You should check the latest requirements in terms of documentation to present. Carry with you any correspondence indicating that your are entering the United States for developing business from a Canadian base or to provide a contractual service for which an agreement has already been reached. Keep in mind that U.S. Immigration is concerned about people going across the border looking for jobs/employment.The border crossing process is being expedited through several multiple-entry visa options. Professional Qualifications
Under NAFTA, professional associations from the three countries are to work together to establish standards for mutual recognition of professional credentials. Some professions (e.g., architects, engineers) have already done so with the United States. Check with your professional association on the status of such negotiations. Intellectual Property Rights
NAFTA provides extensive protection for patents, trademarks and trade secrets. It is the first trade agreement to offer protection for trade secrets, which can include formulas, customer lists and production processes.The Agreement also contains extensive provisions on intellectual property enforcement, including civil and administrative procedures, provisional remedies, criminal penalties and border enforcement mechanisms. Further information may be obtained on intellectual property matters by calling the Intellectual Property Directorate, Industry Canada at 819-997-1936. Government Procurement
Under NAFTA there are greater opportunities for Canadian firms to sell to the Mexican and U.S. governments. For example, under the Free Trade Agreement, procurement disciplines applied only to goods purchased by federal government departments. NAFTA, however, expands the scope of obligations to include services and construction, lowers the threshold for competitive bidding, expands the coverage to include more U.S. departments and agencies and includes Mexican government purchases. Like the FTA, NAFTA does not apply to procurement by provincial, state, county and municipal governments.
2.4 The Mexican and Chilean Opportunities
Mexico is a country of 105 million potential consumers with an expanding middle-class of around 30 million people (roughly the size of the Canadian market). It is a country that has problems of infrastructure underdevelopment, transport and communication difficulties, and pollution concerns.Yet, attitudes in Mexico towards free markets, capitalism and privatization are changing. For the Canadian exporter, Mexico will not be as easy a market to penetrate as the United States. A different language and business culture will present barriers to those who are not willing to learn and adapt. But for those Canadians willing to invest time and energy, Mexico represents an export opportunity. For many companies, Mexico will be their first non-U.S. export. Some expect Mexico to be a stepping stone to the whole of South America.The Canada-Chile free trade agreement was an important first step. There is the prospect of a much larger unified trading market including the whole of South America. Canadian exporters should recognize the need to get in early.
3. Your Export Market Access Plan
Access to markets varies from country to country and product to product. There is a wide range of organizations and research tools available to shed light on possible market leads. Careful planning will save you time and money.
3.1 Export Market Research Techniques
To prepare properly for the export market, you should explore all the avenues available to increase your knowledge of exporting. A number of government, educational, trade associations and other private-sector groups operate export seminars and workshops. Check with your local community college to see what full and part-time programs are offered. The Export Development Branch of Ontario's Ministry of Economic Development and Trade also supports a number of export education workshops and programs. A wealth of market research is available. Much of it can be accessed for little or no cost. Extensive preliminary market research can be done from your own desk. Desktop research calls for an inquisitive mind and an orderly collection and analysis of information. This research can save you the price of a return trip to the export market you are thinking of targeting. Low-cost Market Research Approaches
There is a wide range of organizations and resources that provide exporters with an inexpensive source of information on potential markets. For more information on the organizations listed below, see "Low-cost Market Research Aids" in Part II of this guide.
When you're on holidays, search for sources of export and trade information. Perhaps your vacation destination could be a market for your product. Would it not be nice to have a business excuse to get there more often?
3.2 Preparing Your Export Marketing Plan
Analyzing Your Target Market
Your research will provide a better understanding of where the opportunities are and what is needed to win the business of your target market. This understanding will contribute to your potential for success when you visit your market destination. To plan a winning strategy, take a look at your target market's:
An analysis of this market information will help you define export opportunities and associated risks. This homework is an excellent investment–and it is cheaper than a plane ticket to your potential market! Checklist: Key Elements of Your Marketing Plan
Once you have identified your market, you will need to organize the key elements of your Export Marketing Plan. Use the guidelines below to help develop your plan.
3.3 Export Entry Strategies
Exporting the finished good or service represents only one of several strategies for entering foreign markets. Factors like high transportation costs or high tariffs could mean your merchandise cannot be competitive in a foreign market. Other ways may be open. Make sure that you explore all the strategies for bringing your goods to your customers outside Canada. Apart from shipping finished goods, you can enter into export markets by:
Your strategy can differ from country to country and from regional market to regional market.You could find, for instance, that you can easily sell your goods in the United States, but that your transportation and product tailoring costs make it difficult to export to Southeast Asia. A joint venture to manufacture in the region might make more sense. Or a wholly owned investment in a foreign branch plant may best serve your objectives in the region. The best strategy for entering a market is one that makes your merchandise most competitive in that market. Consider the following in assessing your potential to compete in a target market:
While adapting to the market of the host country could significantly increase costs, the resulting increase in volume may make it worthwhile. Additional business contributes to the fixed costs of production even if the profit margin is relatively small. Structuring Your Export Access Strategy
When structuring your export access strategy, make sure your management is in clear agreement on:
3.4 Strategies for Service Exporters
Marketing your services abroad is similar to strategies for expanding into another Canadian province. Depending on your business, there are a number of ways to enter a new market. In general, you will want to select ones where you can draw on personal referrals rather than making "cold calls." One possibility is to respond to Requests for Proposals (RFPs) from organizations in the foreign market or International Financial Institutions (IFIs) such as the World Bank or the regional development banks. Ideally, you would want to be involved with the IFI at the pre-feasibility stage when you can help shape the project to be funded. Remember that when an IFI is involved, you will have two clients, the IFI and the national government. The Canadian government has a representative at each IFI who can help you in marketing your services. Another possibility is to identify a need that is not being met and design a service to fit that need. In this case, you will want either to have an almost guaranteed customer or someone to invest in promoting the availability of the new service. In such an endeavour, a local partner can be very helpful. Tips for Setting Export Objectives
Short-term objectives: aim to establish a foothold in the market.
It is much easier to be referred into the foreign market. To do this you will want to talk with your present and former satisfied customers to determine whom they could refer you. Similarly, you can talk to foreign students studying in Canada or recent immigrants to Canada, about contacts they have in their home country to whom they could refer you. The easiest of all is becoming so visible in the foreign market that potential customers approach you. To do this, you will want to adopt strategies such as (Note: "local" here refers to the foreign market you are targeting):
3.5 Direct Exporting Options
Exporting directly into a foreign market requires more skills than indirect exporting because you must deal with many unknown factors. Follow these steps to establish your representation in your target market:
Foreign Distributors
A foreign distributor orders goods and resells them to wholesalers, retailers or end users in his own country at prices they set themselves. Distributorships are usually granted for a specified territory and the distributor provides after-sales service and technical support. Your distributor may also agree to develop a market for you with his or her sales force, appoint dealers, and handle all promotions. If a distributor is appointed on an exclusive basis, he or she receives sole rights to sell in a given territory. A distributor usually handles a number of similar product lines. Agents
A sales agent (or representative) in a host country generally works on commission in an exclusive territory. The agent seeks business, enters into legal contracts with the purchasers on your behalf and conveys the purchase order to your Canadian base.You then ship to the purchaser directly. In many instances, the exporter relies on the agent's judgment regarding credit risk. Agents often provide some collection support. An agent may be an individual sales representative who works on his/her own in a specialized product area, or may be a large manufacturer looking for a product to complement its product line. Agents may provide a variety of support services, including carrying stock, promoting services, advertising and repairing goods. When selling through an agent, you have more control over the market activities than selling through a distributor. Another form of "agent" is a manufacturer's representative. Selling via a manufacturer's sales representative is appropriate where there are more customers to be called on than your sales staff can economically handle. Manufacturer's reps usually carry very focused, vertical product lines and have the advantages that they already know the market and customers; you only pay them when they make a sale. Direct Sales to Final Buyer
Direct sales to a buyer is ideal for technical products requiring technical service and support.You must have the ability and resources to be involved in all aspects of marketing and after sales service. When selling directly to a buyer, you retain a high degree of market control. However, the marketing costs may be high. Selling direct is appropriate when the depth of knowledge or expertise essential to sell your products can only be provided by your own sales staff. It also might be appropriate if you have relatively few potential customers or where your potential customers are concentrated in a relatively small geographical area. Foreign Broker
This is a firm or individual working on a straight commission as agreed to by you. Brokers usually specialize in bulk commodities. They bring together a buyer and seller and helping negotiate agreements or contracts. Licensing Agreements
When an exporter is faced with prohibitive production costs at home, low-priced competition abroad, transportation problems, or high tariff barriers, a licensing agreement can be an alternative to market development. The holder of the license then produces the product in the foreign country; finances and builds manufacturing facilities; and uses the exporter's trademark, patents, technical know-how, or training, in return for payment of a royalty or fee. Franchising is another form of a licensing agreement. The main advantage of licensing is that market penetration can be achieved without direct investment by the exporter. However, a disadvantage is that a licensee is a potential competitor upon the termination of the licensing agreement. Exclusive agreements on sales territory and rights may be included in a license. Laws and regulations governing license agreements vary from country to country and the licenser's lawyer should review the foreign country's regulations covering the types of rights which can be licensed legally. Be sure to investigate your legal recourse to enforce the foreign licensee's agreement to pay the royalties and the legal if either party should break the agreement. Joint Venture
A joint venture is a step beyond licensing. Here, the exporter invests money along with a foreign investor or investors to produce the product in the host country. Joint ventures entail many technical considerations and are often covered by special legislation. Therefore, before entering into a joint venture, it is important to a lawyer with a thorough understanding of all host country's relevant laws.
3.6 Exporting in a changing world
The U.S. offers vast market for Ontario exporters. While the similarities of language, laws, standard of living and attitudes give Canadians a unique advantage over exporters from other countries, they can also cause us to overlook the many ways in which the two nations are different. Canadian exporters must treat the U.S. as a market separate from Canada. The events of September 11, 2001 and the resulting security measures have affected border wait times, packing legislation, reporting requirements, travel many other export-related issues. If you're a Canadian citizen, there's no legal requirement for you to present a Canadian passport in order to enter the U.S. However, given American security concerns it is wise to acquire and carry one when you cross the border. Your driver's license or birth certificate may satisfy an U.S. border official, but your passport is the only definite proof of Canadian citizenship. If you need a Canadian passport, you can contact the Canadian Passport Office at http://www.ppt.gc.ca You can find additional information about the classifications and their related documentation in two brochures published by International Trade Canada: Cross- Border Movement of Business Persons at http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/cross.aspx?lang=en and Temporary Entry to the United States: A Guide for Canadian Business Persons at http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/cross.aspx?lang=en/ The Foreign Affairs Canada's Canada-United States Relations website at http://geo.international.gc.ca/can-am/main/, has links to many resources covering various aspects of the bilateral relationship, including visas and immigration, border cooperation and politics, as well as trade. After September 11, 2001, Canada and the U.S. signed the Smart Border Declaration and Action Plan. This identifies initiatives that promote bi-national cooperation in border security and management needed to ensure public safety and the security of both countries' economies. Certain programs, such as the Free and Secure Trade program (FAST), http://www.cbsa-asfc.gc.ca/import/fast/menu-e.html will provide exporters with new options and new requirements. The FAST program is a joint Canada-U.S. initiative involving the Canada Border Services Agency, http://www.cbsaasfc.gc.ca/menu-e.html, Citizenship and Immigration Canada,http://www.cic.gc.ca/english/index.html, and the U.S. Bureau of Customs and Border Protection (CBP)http://www.cbp.gov/ FAST supports moving pre-approved eligible goods across the border quickly and verifying trade compliance away from the border. It is a harmonized commercial process offered to pre-approved importers, carriers, and registered drivers. Shipments for approved companies, transported by approved carriers using registered drivers, will be cleared into either country with greater speed and certainty, and at a reduced cost of compliance. In Canada, FAST builds on the Customs Self-Assessment (CSA) program and its principles of pre-approval and self-assessment, as well as increased security measures under the Partners in Protection (PIP) program. FAST includes aligning the requirements of Canada's PIP program and the U.S. Customs Trade Partnership Against Terrorism (C-TPAT) program. As part of these programs, companies will have to adopt and implement security procedures to be compatible with guidelines set by both customs agencies. FAST focuses on greater speed and certainty at the border and reduces the cost of compliance by:
The Partners in Protection (PIP) program – This program enlist industry's help in dealing with terrorism, increasing border security, reducing smuggling and combating organized crime. In Canada, PIP is managed by the CBSA. Companies that sign up for the program give the CBSA a self-assessment of their security methods. In return, the CBSA will help the business remedy any flaws in its security. PIP benefits companies through faster movement of low-risk personnel and goods through U.S. customs, improved security for the company and better understanding of customs requirements. You can find out more about PIP from the CBSA's Partners in Protection web page at www.cbsaasfc.gc.ca/general/enforcement/partners The Customs-Trade Partnership Against Terrorism (C-TPAT) program – C-TPAT helps businesses work with U.S. Customs to keep international supply chains secure. If you produce goods and export them to the U.S., it may be to your advantage to be a CTPAT participant.You will benefit from reduced inspections at the border, be provided with a customs account manager and allowed to use the FAST program. To enroll in C-TPAT, you'll have to carry out a thorough self-assessment of your supply chain security, using the C-TPAT guidelines developed by U.S. Customs and Border Protection. You'll also have to develop a program to enhance your supply chain security in accordance with those guidelines. For more information, refer to the C-TPAT web page of the U.S. Customs and Border Protection website at www.cbp.gov/xp/cgov/import/commercial_enforcement/ctpat/ Security alerts – The U.S. Department of Homeland Security (DHS) issues revised security alerts when it believes there is increased danger of terrorist attack. The level of such alerts may affect movement of goods and people across the border. For details of the alert levels and what they mean, refer to the DHS Threats and Protection web page at www.dhs.gov/dhspublic/display?theme=29. Border security procedures are continuously evolving. The CBSA's website has a page that provides the latest border news and updates. Located at www.cbsa-asfc.gc.ca, it includes regularly updated estimates of the wait times at major border crossings. Although U.S. customs regulations are very complex, clearing goods into the U.S. can be relatively uncomplicated if you're well prepared for it – for example, by preparing the most common reason for export shipments having trouble entering the U.S.; so a little extra time spent on your paperwork will contribute to problem-free customs clearance. There are two major ways in which your goods can enter the U.S. – as a formal entry, also called a commercial entry, or as an informal entry. Most exports enter the U.S. as a formal entry, for which U.S. customs regulations recommends the use of a U.S. customs broker. Informal entry doesn't require a broker if the exporter accompanies the shipment, or if the consignee comes to the port of entry to collect it. A broker will clear your goods through customs quickly, sparing you storage costs.To find a U.S. customs broker, check the searchable membership directory on the website of the National Customs Brokers & Forwarders Association of America (NCBFAA) at www.ncbfaa.org. Alternatively, you can find a broker at a particular port of entry by visiting the Ports of Entry page on the U.S. Customs and Border Protection site at www.customs.gov/xp/cgov/toolbox/ports/. Select the port of entry and scroll down the page to the link for its brokers list.
Required documentation for formal entry
Your shipment, if destined for formal entry, will require the following documents and information: Commercial invoice – Also known as a business invoice, this must exactly represent the content and value of your shipment. Never declare goods, such as promotional items or samples, as being of "No commercial value." U.S. customs officials may decide to impose a value of their own or may even refuse entry of the goods. Another invoice tip – when using part numbers, provide a written description that will help classify the goods for customs purposes. Also, be sure that each invoice also shows the total amount charged to the buyer for the shipment; never use the net value. NAFTA Certificate of Origin – Determining the eligibility of goods for NAFTA treatment and providing the importer with the Certificate of Origin is the exporter's responsibility. To claim NAFTA treatment, the importer must be in possession of a valid Exporter's Certificate of Origin from the Canadian exporter that certifies that the goods in question meet the NAFTA Rules of Origin. Exporters can obtain copies from Canada Customs and Revenue Agency offices in Hamilton, London, Ottawa and major bordercrossing points, or visit their website at www.ccra-adrc.gc.ca Country of Origin Marking Rules
NAFTA marking rules are distinct from the NAFTA content rules. The marking rules serve the domestic purpose of informing the ultimate consumer of a good where that goods were made. In contrast to the content rules, which are common to all three parties, each NAFTA member is required to establish its own set of marking rules. The marking rules of each NAFTA country apply only to imports from its NAFTA partners. Accordingly, the U.S. marking rules will pertain only to imports from Canada and Mexico. Similarly, Canada's marking rules apply only to imports from Mexico and the U.S.The NAFTA marking rules do not apply to exports or to goods that are produced and sold domestically. Marking must be sufficiently permanent to remain in place unless deliberately removed. Importer ID Number – Also known as the Customs Assigned Number, this is used by U.S. Customs to establish bond coverage, release and entry of merchandise, liquidation, the issuing of bills and refunds, and drawback processing.Your customs broker can help you obtain the number or you can get it yourself by submitting Form 5106 to U.S. Customs, available at forms.customs.gov/customsrf/getformharness.asp?formName=cf-5106-form.xft. Bill of lading or airway bill –Your freight forwarder, carrier or broker is responsible for filling it out. A bill of lading isn't needed for mail shipments. Entry manifest – The carrier is responsible for filling this out. Again, this isn't needed for mail shipments. Entry/immediate delivery – This is used for time-sensitive shipments, such as fresh produce, and replaces the entry manifest. The carrier is responsible for submitting this to U.S. Customs before the shipment arrives at the port of entry. Harmonized System Tariff Classification (HS Code) – Depending on the nature of the goods, the shipment may also need to be accompanied by permits or licenses (if they're controlled goods) and a packing list. Informal entry of goods
Your goods are considered an informal entry if their value is less than US$2,000, and provided they are not controlled goods. Informal entry doesn't require a broker if the shipment is accompanied by the exporter, or if the consignee comes to the port of entry to collect it. Documentation for informal entry is less stringent than it is for formal entry. The shipment must be accompanied with its commercial invoice.You should also include a NAFTA Certificate of Origin; while this isn't legally required by U.S. Customs, providing one will smooth your shipment's path across the border.
3.7 Indirect Exporting Options
Indirect exporting is not as aggressive an approach to exporting as direct exporting, and a firm may not be able to fully maximize the profit potential in foreign markets. Brokers
An local export broker works on a commission basis, and is similar to an overseas agent or broker. Usually a specialist in certain bulk commodities or manufactured products, brokers are then in a good position to find buyers for those products in many areas of the world. Trading Houses
Selling via trading house is appropriate if you do not have the resources to service a distribution channel in the market; if an export market is relatively exotic and requires cultural and market knowledge that you cannot readily acquire; or when you would prefer not to become involved with exporting but would rather deal through an experienced third party. Trading houses are specialists in exporting.They undertake to market a firm's product by acting as a local export department for the firm. Trading houses may be both exporters and importers. They are knowledgeable about their markets, know the customers' needs, the communication problems in foreign markets, and the cultural problems in the market. They usually handle packing, shipping, and documentation and thus relieve you of many of the tedious tasks required for exporting. A trading house may buy products from you outright and assume all credit and financial risks in selling abroad, or it may be retained on a commission basis, acting on your behalf, with credit and financial risks to be shared with you. (Note: For more information on trading houses, see section 4.4 "The Canadian Trading House Option.") Canadian-based Foreign Buyers or Purchasing Agents
Resident foreign buyers or purchasing agents in Canada act on behalf of their principals abroad. They buy a wide variety of industrial and consumer products and are located in large cities. Manufacturers
Some manufacturers in Canada buy many components or parts from other domestic manufacturers, either for use in the products they export or to complement their export product line. Consortia
Many Canadian companies participate in capital projects throughout the world such as dams, schools, airports, or manufacturing plants. These projects require hundreds of different products and services; small firms have the opportunity to be suppliers to them. Procurement Offices
Some communist or socialist countries buy goods through procurement offices established in foreign lands. These government crown agencies usually procure large quantities of goods, such as agricultural equipment, hotel furnishings, construction machinery, and apparel.
4. Selecting Your Local Sales Agents
Local agents or representatives are critically important to the success of export programs. They have contacts and networks in place and an established reputation in their local markets, all of which can open doors for you. The relationship that you create with your agent can be the foundation of a long-term, mutually beneficial partnership. However, it is vital that you find an agent that is right for you. It is also crucial that you and your agent understand clearly what each party expects of the other. The following chapter will give you an overview of some issues and options for your consideration.
4.1 Finding the Right Representative
No decision is as important in the development of an export strategy than the selection of your representatives in your target market. Make sure that the representation you select (agents or distributors etc.) have the necessary qualifications to develop and service the market. The following sources can provide lists of individuals and/or companies that you can use to begin your screening process.
Tips for Selecting a Representative
4.2 Evaluating Potential Representatives
Consider their experience and knowledge:
Does the prospective agent or distributorship have the know-how and resources to provide after sales service at the quality level your company expects? Who are the principals of the prospective agency or distributorship? What is their background and experience in your field? Are they active participants in the firm? If not, how important is this to you? In some foreign markets the social and business connections of the principals can mean far more to the success of your merchandise than a monthly marketing call. Are they reliable and able to deliver:
Examine the prospect's service record. Can the prospect deliver the service promised in your existing guarantees and/or warranties? Examine the prospect's readiness to serve your needs. Examine their facilities:
Does the prospect have warehousing facilities and a good shipping system? Does the prospect have modern communications systems? How many offices does the prospect have in the territory it would be covering? Consider their existing customers:
Examine the prospect's current and past customers. Does the prospect represent lines that compete with yours? Make certain that your agent or distributor has no conflict of interest in representing you. Is the prospective agency or distributorship calling on the type of customer that would be interested in your merchandise (i.e., is its target market the same as yours)? What major accounts does the prospect currently hold? Examine the merchandise lines the prospect represents. Evaluate the staff and sales abilities:
Is the prospective agency or distributorship large enough to service your potential market? How many staff members does the prospect have? Is the staff that will be handling your business qualified? Examine the prospect's readiness to serve your needs. Examine the way the prospect covers its territory. Does the prospective agency or distributorship cover a territory directly or does it cover it using regional representatives? Is the size of the sales force large enough to serve the number of potential customers? Does the geographic distribution of the sales staff make sense? For example, in the United States manufacturers often have several agents across the country on a regional territory basis. Keeping Your Representative Motivated
It is important that you and your chosen representative have a clear understanding of what each can expect from the other. Appointing an agency or distributorship to represent your merchandise is only the first step in developing a customer base in your target market. A successful long-term business relationship requires that you communicate with your representative frequently. Agencies or distributorships need to be kept up-to-date on your line. If you can, offer their staff–your sales force–training and/or incentive to become and stay familiar with your merchandise and its applications. Provide prompt and complete responses to any questions your target market sales force has. Think of them as "customers" who must be kept "sold" on your merchandise on a regular basis. Checklist:What to Expect from an Agent or Distributor
Checklist:What Agents Expect from You
4.3 Agency and Distributor Agreements
Legal Factors
A prudent exporter will usually want a written contract with the agent or distributor. The contract will set out the terms of the business and legal relationship agreed to by the two parties. Foreign and Canadian law affects agency and distributorship contracts in a variety of ways:
Relevant foreign and domestic law should be considered before deciding whether to use an agent or distributorship. Look at the laws before defining the relationship between you and your representative. The laws may have a large say in who sells your goods and who imports them. Foreign duties and taxes imposed on imported goods may vary according to the type of business arrangement used. If you sell direct to the end user, duties and taxes may be imposed on your selling price. If you sell to a representative or maintain an inventory in the foreign market, the base for import duties and taxes will be different than the direct price. When determining the most suitable type of relationship, remember that you can usually choose which country's law will be applied to interpret the contract, and
whether the courts or an arbitrator will be used to settle disputes.
4.4 The Canadian Trading House Option
Canada was founded by trading houses: The Hudson's Bay Company, The Northwest Company and the French fur traders. Throughout history, it was not the manufacturers of the goods that conducted trade beyond the city-state, but the trader. But, in this day and age, would it be a logical step to use the services of a Canadian trading house? For some manufacturers the answer is yes. Trading houses can offer both new and experienced exporters access to markets beyond their present management capabilities. For the new exporter, not wanting to increase risk, trading houses can greatly increase profit potential. It can do so without the inherent risks of entering foreign markets. Trading houses can also assist the experienced company to reach non-traditional markets. The trader knows all the subtleties of international trade. It is not a sometime activity to be engaged in only when there is a glut in the inventory. The trader knows the local language, local rules and regulations, how to move the goods into and through the market. The trader can be cost efficient in a particular market area by carrying a number of similar goods for a number of manufacturers. The costs are spread among the goods. A Canadian trading house is a company with one or more specialist traders and it is an established company operating under Canadian law. A trading house is an export and/or import specialist offering market intelligence and commercial trading of goods that it does not produce, between two or more international markets. The range of services rather than size is the determining factor. A trading house must have sound management, international communications, and trade support services either in-house or readily available. It needs selectivity in goods handled and markets served, and in representing specific lines it needs a close relationship with the manufacturer. It could act as the export department of a manufacturer covering all his merchandise, or only one or two items, into specific overseas markets. The benefits of Canadian trading houses include:
The Trading House as Your Agent
Canadian trading houses can operate in different ways. The simplest way is to be the agent. As such the trader is a go-between, usually in complex, high-value projects.The trader is "plugged in" to the market.That means the trader knows all the right people, from the government ministries to the customs and shipping regulatory persons. Frequently, the agent can handle most of the technical aspects of the item. This involves negotiating and handling logistics of commercial business and shipping. In this instance, the agent does not take possession of the goods. It follows that the manufacturer is responsible for the goods and for payment procedures. The trader will receive the commission once the goods are shipped. The other basic function is that of merchant. As a merchant, the trading house will purchase goods at export prices from the manufacturer and take responsibility for shipping and payment of the international receivable. The trading house will place an order against a firm order from overseas while the manufacturer has a domestic receivable. The trading house needs special export prices to make this feasible. This merchant trader should not be confused with the trader who performs liquidations. Selecting the Right Trading House
The sort of trading house that you will need for an on-going export commitment is a steady trader who knows and understands the manufacturer's goods. This trader has a trusting relationship with the producer that is reciprocated. The trader knows overseas markets, speaks the languages and above all this trader has contacts and knowledge. The process for finding the right trading house involves the same techniques as the search for a corporate lawyer or accountant. It is a matter of talking to the candidates. Getting to know both the candidate and the operation means visiting the offices and asking for a brief proposal. The choice should be based on the criteria outlined above. Ask for references, both normal domestic trade references and overseas. Look for a credible "track record." Does the trader have the languages of the geographic area of concentration? The trader who promises to sell any item in any market should get specially close scrutiny. You must decide what is the right trading house to complement goods in the target markets. One trader may be skilled at handling specific merchandise in specific markets. Another could specialize with one item in one market. Several traders may have strengths in moving different merchandise in different markets. Any combination that works is the best choice for the manufacturer. Ask Ministry of Economic Development and Trade's Export Development Branch, your industry association, the Canadian Manufacturers & Exporters, or the Ontario Association of Trading Houses. Trade shows are good places to let people know you're looking for some assistance. Recommendations are sure to follow. Note: GST and the Trading House: In Canada export trading houses that resell at least 90 per cent by value of their total annual purchases are permitted by Canada Revenue Agency to issue to their suppliers a certificate to allow them to purchase goods on a zero-rated basis. No further processing or alteration of the goods will be permitted in Canada after the certificate has been issued.
4.5 Working with Strategic Partners
A strategic alliance with an appropriate local partner can reduce substantially the time and money it will take for you to develop business abroad. A local partner already has a network of contacts, knows the key cultural variables and can provide you with a local office. Depending on your needs, you may wish to seek a partner in your same industry or in a complementary industry. For example, high-tech firms may find it useful to partner with a local marketing firm. Industry associations may be able to recommend local firms interested in foreign partners. Similarly, the Export Development Branch of Ontario's Ministry of Economic Development and Trade and/or the Canadian Trade Commission may have a list of appropriate local candidates. Remember that local partners are also interested in opportunities for themselves in Canada, so select a partner whose expertise can also help you in your domestic market. An alternative to foreign partners or going-it-alone is to have a Canadian partner. MITT's Export Development Branch, Industry Canada and the Canadian Chamber of Commerce have been working together on developing a more formal "business network" system to help Canadian exporters achieve competitive economies of scale.
5. Export Pricing and Financing
Your export success will depend upon bringing a cost-competitive good or service to the export market. It must also be at a price that is profitable for the exporter.To help determine that price, an exporter must first establish the actual costs for producing and delivering the good or service to market. A key factor in establishing pricing is the cost of financing the export program and the type of payment terms that are established.
5.1 Calculating Accurate Export Costs
The cost of manufacturing is never a mystery when the costs of materials, labour and administration are known. Make sure you know all the costs involved in bringing your goods to your foreign customers. An "educated guess" on costs is not enough. Precision is needed as costs can change frequently. There is no single "correct cost concept" to apply in all situations. Costs can be described most simply as the volume of dollars paid to secure a good or service to be resold at a profit. Costs can be broadly classified into:
The prices paid for cost inputs will likely stay the same over short periods of time but change over longer periods.You must be prepared to reflect significant cost changes in your pricing procedures. Among the simpler tasks is keeping a record of material and labour charges in the production process. More difficult, however, is keeping track of overhead costs. All factory overhead (burden) costs must be added together and allocated on a determined standard. Overhead costs that neither increase nor decrease for any specified level of production must be considered. Property taxes, for example, must be paid regardless of the number of manufactured units produced. A number of methods exist to develop overhead costs. By far the easiest to use is related to the number of units produced. This is the formula that applies: Estimated Total Overhead / Estimated Units of Production = Overhead rate per unit This method is accurate only when realistic figures are used. When calculating your per unit cost, be sure to be realistic. Factor into your assessment:
Not allowing for these situations could mean unit costs for overhead might be too low. Profits will suffer accordingly. Calculating these factors into your projected cost and production output will expose opportunities for improvement.
5.2 Pricing Considerations
To determine your export price, use a careful, step-by-step pricing system. Each export order should be considered individually. Reducing costs can help to gain an advantage even in highly competitive markets.You could gain a market edge by providing "best price" available. Beware, however, that anti-dumping laws in the country where the exports are destined could be a factor in your pricing policy. It pays to know the rules before offering "best prices" available. Note: There are several methods for calculating costs and prices. See the "Case Study: Setting the Right Price" in the Appendix of this guide for a commonly used pricing method. In pricing your service, you need to take into account both "what the market will bear" and what your break-even point is.Your price needs to include hidden communication/ transportation costs and other non-domestic expenses such as possible currency fluctuations prior to the end of the contract. If the payments are sizable (over $35,000 at a time), one of the chartered banks will offer you "hedging" options so that you can reduce your exposure if the client is paying you in a currency other than Canadian dollars. Pricing for Payment Withhold
If the country requires a certain percentage (usually between 15 to 30 percent) of your professional fee be withheld at source for tax purposes, you will need to build into your price your cost of capital or else find a local presence option to avoid the withhold. As a result of tax treaties signed by Canada with various countries, you will eventually be able to recover the withheld amount–but that could take up to 18 months. Note: GST is not applicable on foreign sales, though it may be applicable on the portion of the work performed in Canada for a foreign client. Goods and Services Tax
The Federal Goods and Services Tax (GST) is collected at a single rate (7 per cent) on virtually every transaction of goods and services throughout the production and distribution chain. Most producers, distributors and exporters pay GST on business costs can claim it for refund. This means GST should not be included in your company expenses or in your profit and loss statements. It should be accounted for and shown as a separate balance sheet account. Most companies are now familiar with the accounting for GST. You should note that exports are considered a zero-rated supply (sale). This means you do not collect the GST on the amount charged on exports, but you may claim an input tax credit for the GST paid on virtually all your inputs (purchases). You are required, however, to have proof that the supply (sale) went out of Canada to support your claim for not charging tax on an invoice. The proof must enable departmental officers to track the entire shipment of tangible personal property from its origin in Canada to its destination outside Canada. The responsibility to maintain this evidence of export rests with the registered supplier (vendor). For this reason you will need to keep any:
For more detailed information get GST Technical Information Bulletin, B-062–Export Documentation from your local Canada Revenue Agency Office. Visit the Canada Revenue Agency website at http://www.cra-arc.gc.ca/menu-e.html Ontario Retail Sales Tax
The Ontario Retail Sales Tax should not apply to the sale of goods shipped outside Canada by the exporter if the details of such shipment are supported by suitable documentary evidence. The Ontario Ministry of Finance may be contacted for further information at: 1-800-263-7965 or http://www.gov.on.ca/FIN/hmpage.html
5.3 Financing Your Export Program
Often export prospects can be enhanced by financing the transaction. Among the factors to examine are:
Discussions with potential financiers should start early in the marketing phase. Committed financing offers may be required at the time of submitting prices and technical information. In trade finance, normally your goal and that of your bank should be complementary. Short-Term Financing
Letters of Credit
Letters of credit (or "documentary credits") are issued by a bank at the request of an importer, in favour of a supplier/exporter, for the purpose of financing the import of goods and/or services. By opening the documentary credit on behalf of the importer, the bank obligates itself to pay the exporter–provided the exporter complies strictly with the terms of the credit. This eliminates any risk to the exporter arising from the customer's failure to pay for the shipment. At the same time, the issuing bank provides financing (credit) to the importer. It pays the importer's obligations to the exporter after which it will, in turn, be repaid by the importer. Collections
Collections consist of bills of exchange (or "drafts") which are defined in the Canadian Bill of Exchange Act as "an unconditional order in writing addressed by one person to another by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed determinable future time a certain sum in money to or to the order of a specific person or to the bearer". Open Account Transactions
Selling on open account is arguably the easiest way to finance exports since this arrangement incurs minimal costs to the exporter and involves little paperwork. Goods are delivered to the customer, an invoice is issued and the customer pays within a stipulated period. Open account transactions are typical in domestic business. In international trade, however, they can be highly risky. The one area of international trade where they are common is in transactions between Canada and the United States. The exporting party must finance the transaction with its own funds until it receives payment from the purchaser. Purchase of Foreign Receivables
An exporting firm can convert its foreign receivables into immediate cash by selling them to a bank or factoring house. The receivables are discounted by an amount deemed to cover financing charges and risks. The purchaser then assumes responsibility for the commercial and political risks underlying the transaction as well as for collecting payment from the foreign customer. Selling its foreign receivables provides the exporter with the advantage of immediate cash, credit risk protection and collection services. Such advantages are not free. The discount applied covers the costs of these services, reducing the revenues that find their way to the exporter. Medium and Long-Term Financing
Medium-termed instruments are usually structured for repayment periods of up to five years. The repayment of long-term instruments can range between five to 16 years. Such instruments are usually issued by banks or financial institutions, often in support of large projects. In issuing such instruments, the financial institution assumes the risk of non-payment arising from the failure of the customer, the customer's bank or political instability in the customer's country. Among the longer term financing mechanisms, the following are the most used: Forfeiting
Forfeiting or forfeit financing is a medium-term form of seller or supplier credit provided by a number of Canadian banks. The bank purchases medium-term (up to five, and in special cases, seven-year) promissory notes due to the Canadian exporter from a foreign customer. The value of the promissory notes is discounted at a fixed rate so that the exporter receives cash, after deduction of the interest charge or discount. Usually provided with a guarantee from the customer's bank, the promissory notes are discounted by the Canadian bank on a non-recourse basis to the exporter. The Canadian exporting firm benefits from passing on the credit risk and currency exposure to the Canadian bank, turning a credit sale into a cash transaction, receiving fixed rate financing, incorporating the financial cost in the contract price and eliminating extensive documentation. Buyer Credits
A buyer credit is a method of financing an export over the medium to longer term whereby funds are loaned directly to the foreign customer. These credits are usually suited to large financing of capital goods and to support turnkey projects. Buyer credits generally are on a non-recourse basis to the exporter as the importer enters into a direct financial relationship with the lending bank. Export Leasing
Canadian chartered banks can provide export leasing services through subsidiaries. This form of trade financing is usually undertaken by exporters working in conjunction with a leasing company to gain a competitive edge. It can be used for exporting to countries where import restrictions prevent the customer from purchasing foreign equipment outright or where the tax regime favours leasing over outright purchase. Export leasing is usually a medium to long-term means of financing. Depending on the mechanism used, the exporting firm receives cash for its transfer of title to the leasing company and the delivery of the capital equipment to the customer. The leasing company then collects regular payment from the leaseholder. Project Financing
Project financing secures payment for a sale out of the cash flow that the project is expected to generate when it comes into production. The assets of the project serve as collateral, and lenders also have recourse to the cash flow created by the project. Such loans are usually longer term, require extended gestation periods before completion and require innovative financing. Canadian charter banks, through their International Trade and Merchant Banking Divisions, are experienced in arranging project financing, particularly for the mining, energy, forestry, transportation, public utilities and engineering industries. Financing through Export Development Canada
Export Development Canada (EDC) is Canada's official export credit agency. EDC's mandate is to promote Canadian exports by providing insurance to exporters, financing foreign customers of Canadian goods and services and guarantees to banks in support of export trade. EDC financing helps Canadian exporters by providing funds to foreign customers who otherwise might not be able to make the purchase and by assuming the repayment risks in place of the exporter.
5.4 Arranging Your Payment Terms
Getting paid is proof of success in exporting. The best proof of all is getting paid promptly. Exporters who have to wait unduly for payment are the ones who suffer a loss of profit. Specialized expertise is required for an exporting venture. There are a number of factors affecting export payments that do not usually apply to domestic sales. These affect the time it takes to receive payment, which in turn may affect your financing of your export program. Be aware that exporting involves additional distance and time between you and your market, your transactions involve more than one currency and legal system, and Canadian banks do not formally finance foreign receivable (except from the United States). Consider the following methods of payment: Cash In Advance (Prepayment)
When the customer pays cash in advance, the exporter receives a partial or full payment before the goods are exported. This method is risk free to the exporter but extremely risky for the importer. It is normally only used in paying for goods or services that are scarce and in high demand. Bills of Exchange and Drafts
These are documents handled by the chartered banks that state the total value of the goods exported and the date of payment. They are addressed to the importer and require payment on demand–or on a fixed or "to be determined" date–a specified amount of money to, or to the order of, a specified person. The title to the goods is not transferred until the payment is made. There are two types of drafts: a sight draft and a time draft. A sight draft requires a customer to pay at sight, i.e., on receipt, while a time draft is for a specified time after receipt. Letters of Credit
Letters of credit are the most common method of payment in international trade as they provide protection to both parties involved in the transaction. They are issued by the international department of a chartered bank, usually that of the exporter and state all the terms and conditions that the exporter must meet before collecting the specified amount. If the conditions are met, the bank promises to pay the exporter. Letters of credit specify the documentation needed for customs clearance as well as details of any other terms associated with the sale (e.g., packaging changes or translated literature). A letter of credit may be revocable or irrevocable. Irrevocable letters of credit are preferable because they cannot be canceled unilaterally and therefore greatly reduce the risk of non-payment. The exporter can also ask the bank that will be transferring the funds, usually the exporter's own bank, to confirm the letter of credit. This means that the bank guarantees payment upon the fulfillment of the terms of the agreement by the exporter. This confirmation provides additional assurance that the exporter will be paid. Open Account Trading
This method is primarily used between companies that have a long-standing trusting relationship or when billing within the same firm. It is also common in transactions between Canada and the United States. Trading an open account consists of issuing invoices once the goods have been shipped, exactly as is done in domestic transactions. With this method, the exporter assumes all of the risks and because of the absence of any negotiable instrument to document the sale, collection difficulties can occur if the customer refuses to pay. Consignment
When goods or services are sold on consignment, the exporter retains ownership until they are sold. The seller is responsible for the financial burden and risks (i.e., risk of default and damage to goods). This method of payment is usually only used for goods that are risky or not very popular. Countertrade and Barter
Countertrade is a trading arrangement in which a sale to an importer is conditional on a reciprocal purchase by the exporter. Instead of being paid in cash for a shipment, the exporter would receive products (or even certain kinds of services) from the target market. The governments of developing countries often require trade deals to include countertrade arrangements because countertrade enables them to protect foreign exchange reserves; create new exports or markets; balance trade for economic or political reasons; or acquire new technology. Barter, or payment in kind, is the most basic form of countertrade. It involves the mutual exchange of goods and services between two or more parties. For example, two state-owned trading companies could agree to a quantity of sugar for a quantity of oil deemed to be of equal value. Because trading without the exchange of money is a difficult business, Canadian companies seldom engage in international barter. Successful resolution of these challenges depends on careful analysis, experience in global markets and, quite often, good luck. For the trade practitioner just starting out, the best course is to seek assistance from those who have experience in barter deals and learn from them.
5.5 Payment Tips for Service Exporters
Service firms most typically extend to the customer an "open account," meaning that the service is produced and delivered before payment is received.You may wish to negotiate partial payment prior to delivery to protect yourself in case of default or extensive delay in settling the account. Unless you are incurring major expenses in another currency, your safest route is to negotiate payment in Canadian dollars.That way you will be unaffected by currency changes. However, the customer may be unwilling to accommodate your request. The most rapid ways to get paid from abroad are cash-in-hand or a wire transfer directly to your bank in Canada. If you want payment by wire transfer, you will need to supply your customer with the routing information for your bank, as well as your bank account number.
6. Building Export Success
Export success calls for not only vision and determination, it requires attention to a thousand details–from legal contracts to remembering to take enough business cards on your trip.
6.1 Your Business Trip
You've done your market research, established an export strategy, read up on the culture and business environment and developed a short list of key contacts. Now it is time to visit the market. Consider making that initial trip with a provincial or federal trade mission. Traveling with business associates can provide new insights. For convenience, it helps to stay close to where business meetings will take place. Many business people like to be near the Canadian Embassy, especially if the Canadian Trade Commissioner is helping with the contacts. This can save you valuable traveling time and taxi costs. Remember to give the provincial and federal trade consultants plenty of notice in advance of your trip to the market. Cultural Aspects of Business Travel
Being informed about the culture of the peoples in the potential export market is the first step toward building a mutually beneficial business relationship. Reading about the history and culture of a country prior to your first business trip is time well spent. Not only will this help you enjoy your visit more, but your interest will be well appreciated and noticed by your business contacts. Business people who understand the culture of a country in which they wish to export are more likely to develop successful, long-term business relationships. Canadians abroad are generally viewed as ethical and dependable, which helps in forming alliances. Usually, Canadians are well liked in international business circles, perhaps, because of our traditional reserve. Nevertheless, Canadian firms should pay close attention to different styles of doing business and the degree of importance placed on developing business relationships. Often the first meeting in many cultures is an occasion to get acquainted. Customs may demand that hard negotiations wait until another day. Customs and Taboos
Cultural taboos can affect a business relationship. In Thailand, for example, it is culturally unacceptable to touch the head of a Thai. Similarly, crossing your legs in a manner that shows the sole of your shoe is bad form. Gift-giving is an important part of doing business in Japan. In contrast, gifts are rarely exchanged in Germany. Cultural customs also affect how and when products can be marketed effectively. For example, in the Netherlands, Christmas gifts are given on St. Nicholas' Day (December 5) not on Christmas Day. In this country, exporters may need to adjust their advertising to reflect this. Also, customs regarding who may provide the services of a notary vary from country to country. Be prepared with lots of business cards. Treat their exchange with respect, especially in a formal culture. In Japan, as cards are exchanged, the title and organization are acknowledged with ceremonial nods and comment. In Indonesia, only the right hand is used for business card exchange. Cultures also differ with regard to the use of meal times for business meetings and the timing of when business topics are introduced. In France and Spain, the business lunch may last two to three hours and is used as an opportunity to get to know one another. In the Caribbean, business persons go home for lunch to have it with their spouse and children. Note: Check your library for resources on cultural aspects of international business. The Canadian Trade Commissioners will usually have a "do's and don'ts list" for your target market. The lists are available for the asking. Refer to Part II, "Federal Government Support to Exporters" of this guide for more information on Canadian Trade Commissioners. Traveler's Tips!
Important Items for Your Trip
Pre-trip Checklist
6.2 The Export Contract
Legal responsibilities and liabilities are automatically imposed by law between the exporter and his distributor, and between the exporter and purchasers sold via an agent. These legal relationships exist whether or not there is a written contract. Furthermore, these legal relationships can also be affected by verbal unwritten undertakings. Discuss with your lawyer what contractual terms are imposed under Canadian law or foreign law, when no other agreement exists between the parties. You may choose to modify or add to those terms based on your findings. Preparing a Written Contract
You should ensure that suitable legal relationships regarding your exports are set forth in written contracts. Various laws in Canada and foreign countries subject vendors and purchasers to obligations and liabilities that can be modified by written agreement. The laws of the country where the offer to enter into a sale is accepted–or which has the more substantial tie to the transaction–will normally govern the legal relationship between you and your representative. A written contract can designate a different governing law in most business relationship matters. United Nations Convention on Contracts
The U.N. Convention on Contracts for the International Sale of Goods may also apply in addition to, or as part of, the domestic law otherwise governing the export sale. This applies in stipulated circumstances: if the countries of both parties have adopted the Convention, or if the law of the country that has adopted the Convention governs the contract. The Convention came into force in Canada in May, 1992, and automatically governs most international trade contracts entered into by Canadian companies.
6.3 Delivery: Containers, Carriers and Customs
Packaging Requirements
Your merchandise must arrive on time and in perfect condition. The packaging must be designed to resist damage in transit and to conform to possible heavy-lift requirements. It has to resist both thieves and climate en route and at destination. Today, most shipments are containerized. Environmental regulations in the country of destination may determine how you need to pack your goods. Increasingly packaging must be recyclable. Germany, for example, has one of the toughest packaging laws in the world requiring companies to take back and recycle packaging used during transport or arrange for someone to do this. While the importer has immediate responsibility, your competitiveness in the market will depend on your ability to meet such criteria. Checklist: Writing Your Contract
A written contract for the export sale of goods should: Be executed by persons empowered to legally bind the parties;
Be sure to have the general form of the contract to a particular country reviewed by competent lawyers in that country and in Canada. Transportation Costs
Since the mid-1980s, the transportation industry in Canada has become deregulated, following similar action in the United States earlier in the decade. Transportation costs are now much more affected by the market supply and demand. This results in lower transportation costs and improved services for manufacturers and shippers. Deregulation launched a new way for shippers and carriers to do business together. Transportation services are negotiated and can be contracted in advance on a confidential basis. This is in sharp contrast to the days when prices were determined by tariff boards. Deregulation has introduced innovation and creativity into the industry, resulting in significant efficiency and productivity gains. Transportation costs play a critical role in determining whether an export sale is profitable or even feasible. The success of your export marketing strategy will depend on getting your goods into the foreign market at a competitive price. While the responsibility for transportation is negotiated in the terms of sale, it is always essential to understand the costs and alternatives available. Make sure you comply with all regulations if transporting hazardous materials. The Freight Forwarder
A competent freight forwarder can save you time and effort in planning the best methods for shipping, routing and the preparation of export documents.To ensure that your forwarder is doing the job for you at a competitive price, you also need to understand the basics of freight forwarding. Since your potential customer compares quotations from all sources on the basis of his delivered costs, it is critical that you select the most cost-efficient method for shipping your goods. Cost savings from your freight forwarder are vital to your competitive and profitable export selling price. Exporters of smaller shipments might consider using the services of a freight forwarder who can offer consolidation at better prices than shipping independently, as well as the convenience of single billing and tracing service. Check the reliability, capability and experience of the freight forwarder best suited to you. Meeting the Standards
Standards are playing an increasing role in regulating trade in all industry sectors.You must meet merchandise standards and codes in all states of the United States and in the European Community (EC). In the EC, for example, the Commission of the European Communities issues directives for specific merchandise groups, outlining minimum requirements that must be met before goods can circulate freely throughout the European Community.You need to identify what directives affect your goods and what standards must be met. The Standards Council of Canada can provide relevant information. ATA Carnet: Duty-free AdmissionThe ATA Carnet is a special customs document providing for temporary, duty-free admission of commercial samples, advertising materials, professional equipment into the countries participating in the system. The Carnet allows the traveling exporter to:
To obtain a Carnet, an exporter will be required to provide security to the extent of 40 per cent of the value of the shipment, which is held for up to 30 months. Security is refunded or canceled provided the Carnet documents are in order and there is proof that the goods have been returned to Canada. Note: Application forms for the ATA Carnet can be obtained from The Canadian Chamber of Commerce:
6.4 Managing Your Risks
Insuring Risk
Risk is part of life for any business, including exporting. Risks exist even though you are prudent in what you have contracted to undertake. Some risks are beyond your control. Fortunately, it is possible to take out insurance to cover many contingencies.You can, for instance take insurance precautions against:
Not all customers and countries can be covered in this way. If coverage is not easily available, you may want to think twice about doing business there. Insurance for protection against risks of loss by exporters of goods or services are, in general, broken into two basic categories: political and general/commercial. Risk begins once the contract comes into effect (if not before) and continues until payment is complete. As a result, exporters should investigate the types and costs of insurance required and desired should commence at the initial stages of transaction negotiations. Political Risk
Insurance against many political risks can be arranged from either the federal Export Development Corporation or from a number of private commercial insurers and your licensed insurance broker. While the products available from each often compete in coverage and cost, they also complement each other. General/Commercial Insurance
These coverages are associated with the usual risks of doing business and are available from private commercial insurance companies and your licensed broker. Be aware that not all brokers have had the opportunity of exposure and therefore many lack experience in the peculiarities of insurance relating to foreign application and the export trade. The extent of coverage is often dictated by the terms of sale. The following are examples of the types of coverage available: 1. Credits Insurance
Export receivables are subject not only to the political risk in the customer's country but also the commercial risk of the foreign customer, i.e., its ability to pay. Most firms find managing the commercial risk more difficult than with domestic receivables because of the lack of adequate credit information and the long distances between the supplier and customer. Losses due to contract cancellation, customer insolvency, repudiation or simply default (refusal of the customer to pay an invoice when due), can have a disastrous impact on your cash flow and your ability to finance operations. Coverage is available from private insurers and Export Development Canada (EDC), Canada's official export credits agency. 2.Transportation/Marine Cargo
This insurance covers the loss or damage to goods during transit by land, sea or air and incidental associated storage periods. This coverage may include:
3.Travel Insurance
This coverage needs to include trip cancellation (if a restricted air fare), travel of family members to care for personnel ill abroad, return of the body in case of death abroad, etc. Such coverage, up to specified limits, is often required as part of major contracts. 4. Professional Liability
Professional liability insurance is especially important in markets like the United States where legal action is very common. At a minimum, such insurance can cover the cost of legal fees for responding to an action that has been filed against your firm. There are three other areas of exposure addressed by professional liability insurance:
At present, it is difficult to get "global" coverage and market-by-market coverage can be costly.
6.5 Export Success Checklist
The following 20 steps will help ensure success in your export program:
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