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Buying and Selling Overseas Getting Started, the SME Perspective.
Many businesses do successfully take the step and dont look back. How do they manage this?
The thought by many small businesses of having to deal with overseas customers can be such a daunting prospect that they may choose to ignore this option and, as a result, impair their ability to grow their business to its maximum potential. For others, they can fail to appreciate that the way business is conducted abroad can be different to that in the UK and, as a result, they do not achieve the desired effects for their business.
However, it neednt be so. Many businesses do successfully take the step and dont look back. How do they manage this?
The bad news is that theres no simple answer unfortunately, you cant pull an all encompassing A-Z off the shelf. The good news, however, is what you can do is to use the myriad of resources that are available to all businesses to allow them to gain that first foothold in International Trade. And, whats even better, it doesnt stop there if you know where to look, you can obtain ongoing help and advice from experts in this field. So, what are you waiting for??
Well, first things first. Treat it like any new venture plan and research thoroughly. Although some of this can be done with the help of outside assistance, you have to start it off after all, its your business and your product or service that were talking about here. Also, the basics of a well thought out and presented plan will help to impress anyone outside your business whose assistance you are seeking. Dont expect to have covered everything, and treat the whole process as a learning exercise for you and your staff. As you continue to expand and find new markets, what you have learned this time round will undoubtedly benefit you in the future. Like most things, the first time is the most difficult.
Advice is available from many sources if you are a brand new start up, the East London Small Business Centre is an ideal starting point [www.goeast.org], whilst for existing businesses, the Chamber is a good starting point [www.bdchamber.co.uk], plus your local Business Links consultants London/within M25 [www.businesslink4london.com] or Essex beyond M25 [www.bl4e.co.uk]. They can help you complete much of your business plan and assist with the ongoing market research, whilst your bank can assist on the financial side, although for many small businesses, this is rarely in sufficient depth. Consider also the many alternative providers of foreign exchange, who are often more competitive than the banks on smaller sized deals and for a more personal and detailed financial discussion on your new overseas venture, use an independent consultant, who can overview the financial side of your plans possibly including any current banking facilities and make constructive suggestions on reducing further your overheads, giving you a direct positive effect on your bottom line .
The actual steps that you need to take as you plan and research will vary considerably according to your own position are you importing or exporting? Raw materials or finished goods? Permanent supplier/market, or seasonal one? I would suggest, however, that the following should appear in most, if not every plan.
- A short summary rationale as to why you are looking to trade overseas e.g. source cheaper goods, find new markets.
- Is this on-going or seasonal?
- If known at this stage, the Country/Countries that you want to trade with, again, with a rationale as to why these Countries and not others.
- Again, if known at this stage, how you intend to control the overseas part local representation, agents, joint venture?
- How do you intend to research the chosen Country/Area? Fact finding missions and trade fairs are but 2 possibilities. Can any other businesses who have been down this road before assist you?
- The legal status of any agreements to your new suppliers/buyers. Formal contracts? UK or local [foreign] law? Obtain suitable legal advice preferably before you commit to anything.
- Trade terms. You may not know at this stage, but part of any agreement/contract that involves the shipment of physical goods will include what are known as INCOTERMS. These define which party is responsible for the goods at each stage of their movement from supplier to buyer. If you are involved in a service related trade, you need to consider at what point the service has been delivered and, therefore, payment is due.
- Consider whether there are any import/export restrictions and/or tariffs/quotas on your goods/services both from the perspective of the UK and the foreign Country. The UKTI website is a good source of information here.
- For physical shipments, do you need to consider how they will get from A to B? Do you currently have a Freight Forwarder?
- An acknowledgement of the fact that local business protocol may be very different from that seen in the UK. You need to understand this before you embark on any visits/negotiations, even those at a distance, e.g. telephone/internet.
- Is there a language issue to consider? English may be the language of business, but its not universal!
- Impact on cashflow. DO NOT OVERLOOK!! This is a complex and critical area, covering many aspects and much thought [and, usually, help] is needed here again, preferably before you commit yourself to anything. Doing business overseas can make the usual payment cycle longer if youre selling, or shorter if youre buying. Either way, these can have an unexpected and unwelcome effect on your cashflow. Areas to consider include:
- Item price. It needs to be fixed based on the local going price, not the UK one.
- Currency. It may be more convenient for you to price in Sterling, but often the local currency is better and will give better results. For some countries, e.g. China, Africa and much of S America, a 3rd currency [typically US Dollars] may be appropriate.
- Foreign Exchange Risk. If trading in a foreign currency, you need to consider what approach you are considering re exchange rate movements.
- Terms of Payment. Not just what credit [if any] are you giving/being given, but how are contracts to be settled. Putting a cheque in the post is not recommended, not least as its very insecure.
- [If youre importing], quality control of the goods. How is this to be managed? A similar issue may arise for exports, but your usual concern here is getting paid!
- Consider the need for any specialised legal assistance e.g. around Intellectual Property Rights.
The list above looks daunting but, once you start working on it, youll find that many of the categories are closely related and completion of 1 will answer another, so dont be put off. Other, specific issues may apply to you, so do not treat the above as a comprehensive plan. However, many are crucial if you are looking to succeed in your new venture. Its also not too late to review any existing overseas business by drawing up a relevant list. This may help to identify potential problem areas.
Minimising Commercial Risks When Trading Abroad.