Can help new exporters identify opportunities and avoid common pitfalls

Índice Show

Product Readiness and Company Readiness to Export or Import
The Promise and Pitfalls of Exporting
Improving Export Performance
International Comparisons
Service Providers
Export Strategy
Export and Import Financing
Lack of Trust
Letter of Credit
Bill of Lading
Typical International Trade Transaction
Countertrade
Types of Countertrade
Pros and Cons of Countertrade

Use the Customs Info Database

Find your Schedule B Number

Quick links to frequently used export tools.

Consolidated Screening List Country Commercial Guides

Know who you are working with by searching the Consolidated Screening List. This list, maintained by the U.S. Government, discloses persons or entities have been denied export privileges or who raise a “Red Flag” that needs to be resolved before proceeding. You can also search the list to find restrictions on certain exports, reexports or transfers of items.

Learn more about the Consolidated Screening List, or sign up for email alerts that the list has been updated.

Search the Consolidated Screening List.

To successfully complete an export transaction, you are going to need to classify your product, and create its Schedule B number, with the help of a Harmonized System Classification code (HS Code).

HS Codes are used by customs authorities around the world to identify products for tax reasons, and are harmonized (agreed upon) among governments. To create the Schedule B code and fully classify your product, a U.S.-specific coding system is added to your HS code.

To easily find your code, use the Schedule B search engine.

A tariff or duty is a tax levied by governments on the value including freight and insurance of imported products. Different tariffs are applied on different products by different countries. You will need your HS code to use these tools, see the Product Classification tab for more information.

Find your tariff information using your HS code using the Custom Info Database Tool. Learn more about this tool.

Explore the benefits of the current U.S. free trade agreements using your HS code using the FTA Tariff Tool.

Make sure you and your customers are speaking the same trade language with Incoterms. These internationally recognized rules can help you interpret trade terms and will define the responsibilities of sellers and buyers in any export transaction.

Catch up with the latest version, Incoterms® 2020, and ensure smooth transactions and avoid potentially costly mistakes!

Learn about Incoterms.

Pick a new market with confidence! Country Commercial Guides (CCGs) contain market conditions, opportunities, regulations, and business customs for over 70 countries prepared by trade and industry experts at U.S. embassies worldwide.

Search CCGs.

Free trade agreements (FTA) between the United States and select trading partners provide low or duty free access, strong intellectual property protection, and greater U.S. exporter input into FTA country product standards. Get practical guidance to discover if your product or service would benefit from an FTA.

Visit the FTA Help Center.

Top national and international events bring together buyers, sellers, and trade experts from around the world and the country.

Trade Winds Forum & Mission

Women's Global Trade Empowerment Program

Discover Global Markets Business Development Forum

Engage. Follow. Share. As the official export promotion site of the U.S. Government, the ExportGov media channels bring together resources from across the U.S. Government to assist American businesses in planning their international sales strategies and succeed in today’s global marketplace. Follow our social media channels or subscribe to an email list and find events, services, tips, and market research to help U.S. businesses at all stages of exporting.

The U.S. Department of Commerce’s International Trade Administration manages Exportgov as a collaborative effort with the 19 Federal Agencies that offer export assistance programs and services.

Follow the official @ExportGov Twitter account for events and announcements from the U.S. Commercial Service.

Follow the official U.S. Commercial Service LinkedIn account for exporting news and updates.

Learn about the various email lists that are maintained to keep the U.S. exporter informed.

As alluded to earlier, exporting and importing represents the most common method of the sale and purchase of goods internationally. Firms often resort to importation to acquire less-expensive goods or goods that are simply not available in the domestic market.

Many companies use exporting due to three major reasons.

Companies use exporting as a way to expand sales following the saturation (or potential saturation) of domestic markets.
Through exports, companies are able to diversify sales, e.g., a company may be able to offset a slowdown in one market (due say, to an economic downturn), with an increase in another market, thus leveling off cash flow.
Companies use exporting as a low-cost, low-risk means of attaining business experience in international markets. Many small companies use exporting as a way to gain the requisite international experience.

Companies ready to export must not only identify market opportunities but also strive to avoid challenges associated with doing business abroad and to gain familiarity with export-import mechanics, addressing exchange risk, etc., among many other issues.

Product Readiness and Company Readiness to Export or Import

Before embarking into an export endeavor, it is crucial that specific questions are addressed. These questions relate to product and company readiness, as indicated in the figure that follows:

Product Readiness as it Relates to Company Readiness

Product Readiness: Is your product or service ready to be exported by you and/or imported into the foreign market? What international customer needs does your product satisfy? What needs does the product or part satisfy for your value chain?
Company Readiness: Is your company ready to export the product? Is your company ready to import the product or part in the foreign market? Do you have a top-level commitment, resources, skills, and knowledge?

The Promise and Pitfalls of Exporting

Potential benefits from exporting can be great. Notwithstanding the firm's origin, market opportunities represented in the rest of the world is much larger than the domestic market.

Whereas bigger firms may have the luxury of being proactively able to seek out new export opportunities, to a large extent smaller firms take a reactive approach to exporting.

Many firms shy away from exporting because of unfamiliarity and intimidation, which may explain for instance why exporters still account for only a tiny percentage of U.S. firms. Indeed, new entrants and beginner exporters have run into significant challenges which discouraged them from pursuing subsequent opportunities

There are many challenges associated with exporting but the most common drawbacks for exporters include:

poor market analysis
poor understanding of competitive conditions
failure to customize the product offering to foreign customers
lack of an effective distribution program
poorly executed promotional campaign
challenges in securing financing and the bureaucratic processes involved (voluminous paperwork, complex formalities, potential delays, and errors)

Improving Export Performance

Improving export performance is the goal of each exporter. Indeed, there are many ways that inexperienced exporters can gain information about existing opportunities and minimize the potential of falling victim to common pitfalls. To improve their success, exporters should i) acquire more knowledge of foreign market opportunities, ii) Consider using an export management company, and iii) adopt a successful export strategy.

International Comparisons

Many firms fail to consider export opportunities simply because they lack knowledge of the opportunities available. This ignorance can be overcome by collecting and sharing information on export opportunities. Both Germany and Japan (via the renowned MITI - Ministry of International Trade and Industry) have developed extensive institutional structures for promoting exports. Japanese exporters can also take advantage of the knowledge and contacts of sogo shosha, Japan's trading houses. Unlike the Japanese, the U.S. has not developed an institutional structure for promoting exports similar to Germany or Japan.

Service Providers

There are many service providers involved in the export business. They include freight forwarders, export trading companies, export packaging companies, customs brokers, confirming houses (buying agents), export agents, merchants, marketers, and most notable, Export Management Companies (EMC) that handle all aspects of exporting.

EMCs usually deal with two types of export engagements. Initially, their exporting operations on behalf of a firm related to the firm's 'newness' thus having an agreement to do this on a temporary basis until the firm has enough experience to handle on its own.

Theoretically, therefore, the advantage of EMCs rests in their experienced specialists (though quality varies) who can assist with opportunity identification and avoidance of the common pitfalls.

Export Strategy

In addition to utilizing EMCs, a firm can minimize the risk associated with exporting by carefully choosing an export strategy. It can initiate several steps to assist in improving exports endeavor:

Hire an EMC to help identify opportunities and navigate paperwork and regulations
Start by focusing initially on just one or a few markets
Enter a foreign market on a small scale in order to reduce the costs of any subsequent failures
Recognize time and managerial commitment involved in building export sales
Devote a lot of attention to building strong and enduring relationships with local distributors and/or customers
Hire local personnel to establish a firm in a foreign market
Be proactive about seeking export opportunities
Exporter should retain the option of local production

Company Readiness to Export

Product Readiness + Company Readiness = Company's Overall Readiness to Export.

The company keenness is in:

Competitive capabilities in the domestic market
Motivation for going international
Commitment of owners and top management
Experience and training

Export and Import Financing

The evolvement of exports and imports over time has ever been in response to a challenge within the international trade area: lack of trust existing when one has to put faith in an outsider.

Lack of Trust

In any event, exporters and importers engaged in international trade have to trust someone. That someone may be very difficult to track down in case of default on an obligation. Each party has a different set of preferences regarding the configuration of the transaction. Exporters for one prefer to be paid in advance, whereas importers prefer to pay for the shipment after it arrives. The trust issue can be resolved via the use of a trusted third party, in most cases a trustworthy bank.

Example: Preference of US Exporter vs Preference of French Importer With No Third Party

Preference of US Exporter vs Preference of French Importer With No Third Party

In one scenario, the U.S. Exporter ships the goods after being paid by the importer. In another scenario, the US Exporter ships the goods then are paid by the importer after the goods are received.

Example: Use of Third Party With an Exporter and Importer

Use of Third Party With an Exporter and Importer

In the case of an American exporter and a French importer:

The importer obtains the bank's promise to pay on the importer's behalf.
The bank promises the exporter to pay on behalf of the importer.
The exporter ships "to the bank," trusting the bank's promise to pay.
The bank pays the exporter.
The bank gives the merchandise to the importer.
The importer pays the bank.

In more detail, first, the French importer obtains the bank's promise to pay on her behalf, knowing the U.S. exporter will trust the bank. This promise is known as a letter of credit. Having seen the letter of credit, the U.S. exporter now ships the products to France. Title to the products is given to the bank in the form of a document called a bill of lading. In return, the U.S. exporter tells the bank to pay for the products, which the bank does. The document for requesting this payment is referred to as a draft. The bank, having paid for the products, now passes the title on to the French importer, whom the bank trusts. At that time or later, depending on their agreement, the importer reimburses the bank.

Letter of Credit

Letter of Credit (L/C) remains at the center of international commercial transactions. Issued by a bank at the request of an importer stating the bank will pay a specified sum of money to a beneficiary (normally the exporter) on presentation of particular, specified documents. This system is particularly attractive because both parties are likely to trust a reputable bank despite the fact that they do not trust each other.

Draft

A draft, or bill of exchange, is the most common payment instrument in international commerce. It is an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time. For that matter, a sight draft is payable on presentation to the drawee while a time draft allows for a delay in payment - normally 30, 60, 90, or 120 days. Moreover, time drafts are negotiable.

Bill of Lading

The bill of lading is issued to the exporter by the common carrier transporting the merchandise. As such, it serves three purposes - it is a receipt, a contract, and a document of title.

Typical International Trade Transaction

A Typical International Trade Transaction

The French importer places an order with the U.S. exporter and asks the American if he would be willing to ship under a letter of credit.
The U.S. exporter agrees to ship under a letter of credit and specifies relevant information such as prices and delivery terms.
The French importer applies to the Bank of Paris for a letter of credit to be issued in favor of the U.S. exporter for the merchandise the importer wishes to buy.
The Bank of Paris issues a letter of credit in the French importer's favor and sends it to the U.S. exporter's bank, the Bank of New York.
The Bank of New York advises the exporter of the opening of a letter of credit in his favor.
The U.S. exporter ships the goods to the French importer on a common carrier. An official of the carrier gives the exporter a bill of lading.
The U.S. exporter presents a 90-day time draft drawn on the Bank of Paris in accordance with its letter of credit and the bill of lading to the Bank of New York. The exporter endorses the bill of lading so the title to the goods is transferred to the Bank of New York.
The Bank of New York sends the draft and bill of lading to the Bank of Paris. The Bank of Paris accepts the draft, taking possession of the documents and promising to pay the now-accepted draft in 90 days.
The Bank of Paris returns the accepted draft to the Bank of New York.
The Bank of New York tells the U.S. exporter that it has received the accepted bank draft, which is payable in 90 days.
The exporter sells the draft to the Bank of New York at a discount from its face value and receives the discounted cash value of the draft in return.
The Bank of Paris notifies the French importer of the arrival of the documents. She agrees to pay the Bank of Paris in 90 days. The Bank of Paris releases the documents so the importer can take possession of the shipment.
In 90 days, the Bank of Paris receives the importer's payment, so it has funds to pay the maturing draft.
In 90 days, the holder of the matured acceptance (in this case, the Bank of New York) presents it to the Bank of Paris for payment. The Bank of Paris pays.

Countertrade

At times firms are not able to import merchandise and pay for them. This could be a result of the government of the importing nation lacking the hard currency to pay for the merchandise or intentionally restricts currency convertibility. Countertrade provides an alternative to conventional means of payment as described above, e.g., when conventional means of payment are difficult, costly, or nonexistent.

Countertrade, therefore, represents a broad assortment of barter-like agreements that facilitates the trade of goods and services for other goods and services when they cannot be traded for money. In the 1980s for example, it was extensively used in developing nations and was the case following the Asian financial crisis in 1997.

In another example, General Electric won a contract for a $150 million electric generator project in Romania by agreeing to market $150 million of Romanian products in markets to which Romania did not have access.

Yet in another example, Philip Morris shipped cigarettes to Russia, for which it received chemicals that can be used to make fertilizer. Philip Morris shipped the chemicals to China, and in return, China shipped glassware to North America for retail sale by Philip Morris.

The Popularity of Countertrade emerged in the 1960s in the Soviet Union and Eastern Europe, during the cold war. Since the currencies of these nations were generally nonconvertible, they turned to countertrade to facilitate the purchase imports.

Types of Countertrade

Countertrade can be categorized into five district arrangements:

Barter
Counterpurchase
Offset
Switch trading
Compensation or buyback

Barter is basically a direct exchange of goods and/or services between two parties without a cash transaction. Barter is regarded as the most restrictive countertrade arrangement. It is therefore mainly utilized for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy.

Counterpurchase is a reciprocal buying agreement. It takes place when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made

Offset is very much like counter purchase in that, one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale. What makes it different is the fact that this party can fulfill the obligation with any firm in the country to which the sale is being made.

Switch Trading refers to the use of a specialized third-party trading house in a countertrade arrangement. When a firm enters a counter purchase or an offset agreement with a country, it often ends up with counter purchase credits that can be used to buy goods from that country. Switch trading takes place when a third-party trading house buys the firm's counter purchase credits and sells them to another firm that can better utilize them.

Compensation or Buyback occurs when a firm builds a plant in a country or supplies technology, equipment, training, or other services to the country, and agrees to take a percentage of the plant's output as partial payment for the contract.

Pros and Cons of Countertrade

The attraction of Countertrade is that it is a way for firms to finance an export deal when other means are not available. In other words, if a firm is not willing to engage in countertrade, it may lose an export opportunity to a competitor who is willing to make a countertrade agreement. At times, countertrade arrangements may be required by the government of a country to which a firm is exporting goods or services.

On the other hand, countertrade can be unattractive, as its drawbacks are substantial. Most firms prefer to be paid in hard currency. Moreover, countertrade may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably. Certainly, countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrade. In effect, Japan's sogo shosha are masters at countertrade.