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Exporting - A Guide to exporting for small businesses

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Opening up foreign markets seems too daunting for many successful small businesses. There often appear to be thousands of obstacles to developing a market overseas. Market research, language, employment law, late payment, VAT - the problems can seem endless.

But that perception is often misplaced. There is now plenty of help for small businesses intent on establishing new markets abroad.

Business owners' concerns are highlighted in a recent Mori survey showed that small firms who are not currently exporting, are deterred by the difficulties and expense they believe lie ahead.

Over half of business owners surveyed thought they had too little exporting knowledge, were unsure whether their product would be competitive abroad, thought the cost of entry would be too high, or their company was too small. While a quarter believed that a tailor-made market report would cost £10,000 or more: the true cost being £300 - £500.

This guide to exporting, produced by Bibby Financial Services, leading providers of export factoring, sets out to set the record straight, by advising on the crucial first steps to exporting that every business must take in order to succeed. The guide will help you to develop an effective export strategy, learn how to finance your exporting, and where to go for help and advice on developing overseas markets.

Developing an effective export strategy

Before you do anything else, you must develop an effective export strategy. This will minimise the costs you incur in exporting and maximise the chances of success at the same time.

Your export strategy needs to answer all the leading questions. First of all, is there a market for your product abroad and, if so, where is it? Secondly, what kind of competition would there be in any market you entered the and could you ensure the profitability of any export venture in the face of that competition?

Then, if you decide that exporting would work for your business, what is the best way to go about marketing and selling your product overseas? And, last, but certainly not least, how do you finance your overseas ventures?

Finding the answers to these questions will involve you in all the essential elements of an export business strategy. These include market research, distribution, sales and marketing, and funding.

Research your market

A clear focus is crucial to planning. Successful exporters identify and target a small number of key markets. Which regions of the world provide the best opportunities for selling your products or services abroad?

UK exports are currently running at about £165 billion and almost 60% of this trade is with the rest of the EU. France alone took £18.4 billion of British exports last year. However the fact that Britain remains outside the Euro-zone, does mean that additional factors such as the strength of sterling will have an impact on demand from overseas markets.

Government subsidies are available for investigating new market opportunities. The UK Trade & Investment website provides a range of information and gives you direct access to a range of useful services.

If you are new to exporting, UK Trade & Investment's Passport to Export Programme can be a great help. The programme gives you free capability assessments, support in visiting potential markets, mentoring from a local export professional, free action plans, customised and subsidised training, and ongoing support once you've started exporting.

Participation in key trade exhibitions is an important component of this research, enabling exporters to meet potential customers, find out about target markets, and check out the competition.

All this can be planned a long time in advance and worked out to the tiniest detail.

Distribution

The next step along the path to exporting involves considering how to sell your goods abroad. Do you set up a separate company, or a remote sales office, or do you use a local agent, distributor, or licensee to market and sell your products or services? Your decision could depend on the markets you are targeting or the goods you are selling.

Your research, particularly your participation in key trade exhibitions, should help you to decide which is the best option for you.

Market reports are also available to enable a business to choose business partners in different parts of the world. They can help you to identify the best customers, the right approach to those customers, the price of your products and services, and how to handle all the necessary paperwork. Local Chambers of Commerce also give advice on paperwork for the movement of goods.

You will also need a forwarding agent. For this, you can consult the British International Freight Association.

With regard to after-sales service and technical support, your agreement with local partners should require them to provide routine support and any necessary after-training, etc.

Sales and Marketing

A survey conducted by Bibby Financial Services in conjunction with Export Times asked British exporters about the most important skills needed to succeed when exporting.

More than half put international marketing in first place, followed by sales ability. This confirms the importance of targeted sales and marketing efforts in foreign markets.

There have never been more ways to market your goods abroad. Your research should identify which are the best for your products.

If you opt for a distributor, you should consider promotional activity such as collaboration with them on product literature as part of your marketing plan. You should also look at developing a web site, enabling potential customers to access information on your goods or services and make purchases should they choose.

E-commerce is growing rapidly and can have a huge impact on a business's turnover. One village store in England, for instance, increased its overall sales via the Internet when its greeting cards proved more popular in Japan than in the UK.

A little research could also identify the publications which are read by your target customers abroad, enabling you to develop an advertising and public relations strategy for those publications.

Personal contact is also essential. You should attempt to make regular visits to your customers - and encourage them to visit you. You should also consult them on existing and new products so that your offer consistently meets their exact requirements.

Financing your export venture

The next challenge is finding the required funding to start - and maintain - your export venture.

According to the Bibby Financial Services survey, the majority of respondents admitted to using foreign exchange services, followed by a bank overdraft or loan, and then factoring and invoice discounting.

However, there can be some problems associated with selling abroad, including getting paid by your overseas customers. It is this concern which leads some financial institutions such as banks to be wary of funding export ventures, while others specify strict conditions, which might make your foreign sales less than profitable. It is essential, therefore, to research the options thoroughly as part of your export strategy as early as possible.

Getting paid

As most exporters will tell you, getting an order is easy but getting paid by overseas customers can sometimes be difficult. Language is the first hurdle followed closely by the challenge of dealing with different currencies and the problems of fluctuating exchange rates. Credit checks on prospective customers are difficult to obtain and standard terms of trade also vary from country to country.

Moreover, exporters must take account of the fact that average payment times abroad are often greater than the average 46 days we have in the UK. Comparable figures on the European mainland, for instance are 87 days in Greece, 81 days in Italy, 72 days in Spain and 58 days in France.

There are some tried and tested methods to ensure you get paid;

• Letters of credit - A very secure way of obtaining payment, but not always popular with customers, this involves the customer raising a letter of credit, which is guaranteed by a UK bank.
• Advance payments - Again often unpopular with customers but with no risk and no financing costs.
• Bills of exchange - A written document which requires your customer to pay a specified amount on a set date.
• Open account trading - Used within the EU for existing customers, this amounts to offering credit, usually 30 days, upon delivery of the goods.

Whichever method of payment you decide is right for your business, it is essential that you negotiate credit terms - and have them in writing - from your customers prior to the delivery of goods.

A growing number of businesses, and particularly SMEs, are using export factoring both to fund their overseas ventures and to ensure that they get paid by their foreign customers.

Export Factoring provides up to 80% of the value of export invoices together with an overseas collection service for payment of those invoices, releasing a continuous flow of cash for businesses to further develop their overseas activities.

Useful exporting contacts

Institute of Export: publishes Export Today, a bi-monthly magazine, circulated free of charge to members and an authoritative source of information and advice to exporters. Its Helpline offers members practical advice on export problems such as letters of credit, credit insurance, shipping and finance.

HM Revenue & Customs: responsibilities include collecting billions in VAT and excise duties. This Government department can provide information on Income Tax,VAT and National Insurance contributions.

British International Freight Association (BIFA): the trade association for companies engaged in international movement of freight to and from the UK by all modes of transport, road, rail, sea and air; handles 85% of all UK business within the freight forwarding industry. Tel: 0208 844 2266

Bibby Financial Services: The UK's largest independent factoring organisation specialises in the provision of export factoring to SMEís. They provide funding against export sales and will help in managing collection of payments from overseas customers. Tel: 0800 91 95 92

Posted November 12, 2007

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