Exporting 102 – Foreign Market Entry

Resources to identify foreign partners

Resources to identify foreign partners include:

• Trade associations your company belongs to as many have international reach and may have sister trade associations in the countries you’re targeting.
• Sister cities your community is connected to internationally.
• American Chambers of Commerce Abroad
• Visit internationally attended trade shows within your industry, including those in the US.

Once a foreign partner has been identified, you need to perform due diligence to make sure they are who they claim to be and then assess for right fit.

• Visit and study their website.
• Send questionnaire to foreign partner, covering:
  • Size of Firm / List of key personnel, branch offices, bank references.
  • History of selling within target industry, any competing lines.
  • List US firms represented w/ contact name and number
  • Are they willing to travel to the US for training / meetings.
  • Territory sought.
  • Method of market reach including use of social media platforms.
  • State adherence to US export laws and use of US Consolidated Screen List (covered under Core VII – Export Compliance).
• After all feedback proves favorable and the company seems a good match, run a credit check.

Consider Social Media and eCommerce

The use of social media is as big overseas as it is here in the US. If you use influencers domestically to drive traffic, find their equivalents in your top markets. Similarly, identify the top social medial platforms for each country targeted for export. Zink is the German equivalent of LinkedIn, and Facebook in the EU is used more for business that it is in the US, while Weibo in China is the equivalent to Twitter (X) in the West.

Additionally, eCommerce has revolutionized the way sales are made across the globe for both Business to Business (B2B) and Business to Consumer (B2C). There are platforms that are truly global like Ali Baba and Amazon and those that are more industry and region specific. Below are a few for consideration:

• Amazon Global Has 310 customers worldwide. Website lists countries to which Amazon ships, available product lines, limitations.
• Alibaba E-Commerce How-To for Suppliers 40 million active buyers worldwide. Makes money by selling memberships. Alibaba hosts industry store fronts and companies.
• www.Tradekey.com – focuses on B2B
• Lazada – Focuses on Southeast Asia, including Indonesia, Malaysia, Singapore, Vietnam, Thailand, Philippines.
• https://www.trade.gov/ecommerce-digital-strategy 5 steps for international e-commerce strategy offered by the International Trade Administration.
• https://www.trade.gov/report/ecommerce-resource-guide – country focused information on eCommerce.
• US DOC – Website Optimization Service Offered by the US Department of Commerce, this service gives very specific, detailed recommendations on how best to improve your online presence by focusing on the international SEO of a business website and offers a comparison with your top two to three competitors. Fee is $100.

The costs associated with Foreign Market Entry can be substantial, and the State of Indiana offers up to an 80% matching grant of up to $15,000 annually to offset those expenses called IN-STEP (Indiana State Trade Enhancement Program). To learn more, visit IN-Step Guidelines and discover what all is covered.

Assemble your Export Teams

By this point, you’ve discovered the substantial time investment that goes into developing an export strategy that will require support from most of your team.

This step simply involves identifying the internal and external resources available, listing them in your export strategy with the role each plays and contact information.

Internal Export Team Players- most of your company will be impacted by the export development process, so include them early on and make sure they understand that export development will improve the profitability of the company and mitigate the potential risk of domestic recession. Below are some of those departments that should be include:

• Management
• Marketing
• Engineering
• Production
• Quality Control

External Export Team Players – identify and list the various entities you’ve come across in creating your export strategy which may include:

• Indiana District Export Council (IDEC): The Indiana DEC is a not-for-profit organization comprised of trade professionals from different industries and sectors from across Indiana who offer export guidance to companies and conduct conferences and webinars to educate Hoosier firms on the benefits and the how-to’s of export development. It offers a complete list of all of the export development resources in Indiana listed below that involve export development: Indiana’s Export Development Resources
• The Export Advisors of the Indiana Small Business Development Center (ISBDC) offers one on one counseling and export guidance from its 10 offices throughout Indiana.
• The International Trade Administration of the US Department of Commerce offers country reports and industry spotlights, webinars, and direct one on one assistance through their Indiana Office. It also offers the Gold Key and International Partner Search programs as well as the Website Globalization Service mentioned in Core V. For more information, connect with their office in Indianapolis US Commercial Service – Indiana Office.
• The US Small Business Administration offers a myriad of services including those specific to export development including export working capital loans and other finance tools to help exporters compete in the global marketplace. For more information, connect with the Indiana District Office of the SBA.
• Food Export – Midwest is the marketing arm of the US Department of Agriculture and assists US agribusiness exporters with foreign market information, trade show assistance grants, foreign-buyers’ programs, and trade missions. Like the US Commercial Service, it has trade experts in US embassies and consulates worldwide for consultation and guidance.
• The Indiana State Department of Agriculture – International Trade Division helps companies explore export opportunities around the world and works effectively with the USDA’s Food Export Program mentioned above.
• The Export Import Bank of the United States (EXIM) – offers export receivables insurance and export loan guarantees to help exporters remain competitively positioned in global trade.
• Indiana State Trade and Export Promotion program (IN-STEP), through the IEDC offers matching grants to offset the costs associated with pursuing foreign markets.
• Banks: Your bank should have a Swift Code to accept payments from foreign banks, knowledge of export finance and payment terms, as well as familiarity with Incoterms, letters of credit and export receivables insurance.
• Freight Forwarders: Freight Forwarders and Logistics companies often specialize in certain foreign markets and in modes of transit (air/truck/ocean).
• Legal Assistance: Have access to a law firm with knowledge of protecting Intellectual Property, foreign rep /distributor agreements, foreign laws, and the Foreign Corrupt Practices Act (see Core VII – Export Compliance). Other resources to get started:
  • SBA: ELAN – Export Legal Assistance Network https://exportlegal.org/
  • ITA: IP Training Videos (different types of IP, process to protect IP, IP conventions)
  • US ITA Overview on IP Registration and Protection Video on IP Abroad and IP Toolkits

Export Compliance

Recently, US laws impacting export compliance and their complexity have intensified, it is important that you remain compliant in order to export.

The following includes key steps required by the US government to make sure you have clearance to export your product to the intended recipient and nation, that your product is correctly classified and that how you engage with your foreign buyer isn’t counter to US law.

Know under what agency your product is controlled. While there are many federal agencies having jurisdiction over the control of exports, the three principal agencies are the Department of Commerce, the Department of State, and the Department of the Treasury.

The Three Principal Exporting Agencies

This section will the jurisdiction of the three Federal agencies that are most prominent in the exporting process

Department of Commerce

The Department of Commerce jurisdiction mainly covers overseas export controls for commercial, ‘dual-use’ (goods that have commercial and military applications), and less sensitive defense items and technologies through their Bureau of Industry & Security (BIS). Overwhelmingly, most US exports fall under this agency’s purview (EAR – Export Administration Regulations). A majority of products under this agency’s jurisdiction have purely commercial use applications and do not require a license based on the product’s use and have an Export Control Classification Number (ECCN) of EAR 99 – which means ‘No License Required’. This designation will go on your export documents. To self- determine if your product is classified under a different ECCN other than EAR 99, you’ll need to visit:

• BIS Commerce Control List by Alpha Index search by name, key component of product to see if listed. You’ll need to read the relevant EAR chapter and description to determine if it accurately applies to your product.
• BIS Commerce Control List (10 categories each with 5 product groups). If your product isn’t listed in the Alpha Index, you may want to review all BIS categories and product groups to further determine if it’s controlled, and for what reasons and to what countries.

Under EAR jurisdiction, licensing will depend on the item exported, the country of destination, who will be using it and for what purpose. While the majority of reasons for export control are for anti-terrorism and for national security, there are other reasons for export control and these categories may then be paired with the nations listed in the country control chart also found within the EAR.

Department of State

The Department of State acts as the Directorate of Defense Trade Controls (DDTC). As a result, the Department of State oversees the International Traffic in Arms Regulations (ITAR), which issues the Unites States Munitions List (USML) United States Munitions List (USML) for export control of defense items and related technical data. Search this list to determine if your product falls under ITAR. While this governs exports of some weaponry, it also involves the growing US arsenal of high-tech products and systems used to protect and defend US interests. Controls also include transferring, sharing or the training of controlled information with foreign nationals both in and outside of the US (deemed exports). Most exports of defense articles, services and information sharing with a foreign national require a license from DDTC. An exporter must register with DDTC before applying for an export license.

Department of the Treasury – Office of Foreign Asset Control

This body governs and enforces economic trade sanctions based on US foreign policy and national security interests as well as sanctions imposed by the United Nations. The list of sanctioned entities, specially designated nationals, and countries frequently changes based on the shifting geopolitical environment. Best export practices require exporters to run foreign buyers, sales representatives and distributors through the US Consolidated Screen List every time a quote (proforma invoice) is created to make sure the entity buying the good is not on any sanctioned list. Best export practices include the creation of a spreadsheet documenting each time the Consolidated Screen List is reviewed, for what foreign buyer and country, the person searching the database, the result of search, the date, and to save this record minimally for 5 years or longer depending on if a license is required. The list of currently embargoed countries includes Cuba, Iran, North Korea, and Syria. Since this list changes, the exporter is encouraged to visit: US Government Sanctioned Countries.

Other Departments for Consideration

The Nuclear Regulatory Commission (nuclear materials) and the US Food and Drug Administration also have export control requirements. You can find those requirements by clicking on the appropriate link.

Determining the Correct Federal Agency to Use

Determining the correct federal agency having jurisdiction and then determining how and for what reason your product may require an export license is pivotal.

If you have questions about the correct jurisdiction or classification of your product, its advised that exporters apply to the BIS online portal and submit a request for formal classification of their ECCN. This may be done via BIS’ SNAP-R process. Applicants must give a best-guess ECCN based on diligent research and review of the product, potential applications, end destinations and include product details, specifications, brochures, and photos. Once all the required information has been submitted, BIS has 30 days to determine your ECCN. If BIS sends to another agency for review and jurisdiction, that 30 days is paused until they get a reply from that agency, then the clock resumes.

The Indiana SBDC has compiled an 8-point Export Compliance Overview which follows the Export Compliance Manual suggested by BIS, but also adds the two laws mentioned below. Contact your Export Advisor for further information in creating your Export Compliance Program.

US Laws to Keep in Mind

There are US laws that govern how US citizens and companies may conduct business in foreign countries.

The two key laws are the US Foreign Corrupt Practices Act and the Anti-Boycott Act.

US Foreign Corrupt Practices Act (FCPA) of 1977 Under the jurisdiction and enforcement of the US Department of Justice and Securities & Exchange Commission, the Anti-Bribery statute prohibits any offer, promise or authorization made corruptly to give anything of value to a foreign official directly or indirectly to obtain or retain business. A foreign official is any elected or appointed official, including candidates of a foreign government, an employee of a company or institution owned or controlled by a foreign government. Even knowledge of an improper payment or false invoice is a violation of FCPA. Guide for understanding & implementing policy US DOJ & SEC Guide to FCPA. Violation examples include:

• Lavish gifts or entertainment,
• Non-essential or lavish travel expenses
• Keeping dual accounting books for exports
• Offers of employment including to family members, friends of foreign officials.

It is suggested that an exporter entering into agreements with foreign reps and distributors hold a meeting with those partners to discuss the FCPA, and to distribute the FCPA in their native language, document and date when the meeting occurred. Allowing your foreign reps and distributors to conduct business that runs counter to US law is not a wise move.
Also, exporters are encouraged to keep commission rates uniform for foreign markets as wide fluctuations in rates may raise red flags on how your export business is conducted.

US Anti-Boycott Act of 2018 Under the jurisdiction of BIS and within the Export Administration Regulations (EAR), this law requires US persons to refuse to participate in unsanctioned foreign boycotts. The law is intended to prevent US persons from advancing the foreign policies of other nations that run counter to US policy. Currently, the primary focus is on the Arab League boycott of Israel, but the provisions apply to all unsanctioned foreign boycotts. Examples include requiring US companies to discriminate based on race, religion, sex, or national origin, to not conduct business in certain countries, or implement certain actions described in a Letter of Credit such as not allowing the vessel carrying your goods to stop in a certain country en-route to delivering the shipment. Examples of Boycott Requests Reported to BIS

US Export Compliance is complex in today’s business environment, but the ISBDC has export advisors that can pull together resources to answer any export question you may have, free of charge.

Forecast, Plan and Execute the Export Strategy

Now that the research, foreign market assessment and identification has occurred and you know which countries to enter, it’s time to map it out, forecast what you reasonably could expect in revenue in each market, plot a course over the next two to three years to make it happen, and execute!

Forecasting of export revenue for a company’s foreign market may be done in a variety of ways depending on the industry, its lifecycle in the foreign market compared to that in the US, as well as other macro and micro industry and economic factors over which you may have little control. A crude but defendable method is to compare your existing domestic sales to the size of the US GDP and/or to the market size of the US industry, to ‘X’, (the unknown foreign market revenue) and to the size of the foreign GDP and/or market size of the foreign industry, cross multiply and solve for X. The Indiana SBDC has access to exceptional foreign market intelligence reports and data for a variety of industries and sectors for many leading economies including the US. Consider that development of those foreign markets often takes longer than you’re accustomed to domestically, so a conservative estimate involving a ramped-up projection over time is sensible.

Depending on the financial capabilities of the company and availability of time by senior sales personnel and management, a company may decide to go into one market at a time and / or a region at a time, such as Latin America, North America, Middle East or Europe. Splintering sales efforts over multiple continents simultaneously often dilutes the strategy’s effectiveness vs concentrating country by country within the same region.

Identify and map out all export development activities you’ve discovered throughout this process for each country you intend to enter. Below is a basic spreadsheet that includes some of those likely costs:

As you execute the export strategy, you’ll want to:

• Meet with your internal export team on a regular monthly basis if not more frequently.
• Treat exports and domestic sales as equally important consistently.
• Include foreign partners / reps / distributors in national sales meetings and product rollouts.
• Not be frustrated by slow progress of export development – it often takes longer, but well worth effort.
• Be cognizant of changing global and regional macro-economic and political factors which may impact your export strategy including economic instability from wars, currency fluctuations, and major trade disputes. Politico Weekly Trade Newsletter Is a great 10-minute snapshot of national and international developments impacting our nation’s trade.
• Appoint or hire an Export Champion, someone whose job is to advance and execute this strategy. Many companies go through the time and energy to create a well thought-out, executable export strategy only to have it languish because no one person is in charge, leading the export effort.

In the end, export development is one of the strongest ways to increase a company’s revenue and profitability while simultaneously lessening its risk from exposure to just the US market during times of domestic economic downturn.