How to Gear Up Your Business for Exports
Source: The Week
There’s money to be made in exports, but risks too. Here’s The Week’s guide to selling overseas
“Made in Britain” is one of the world’s strongest brands, and one which presents global opportunities for ambitious small businesses in the UK: last year Britain sold goods worth £304-billion overseas.
Moving into the export market may be a bewildering prospect, but the rewards can make it worthwhile. Companies that sell overseas are more productive, more profitable and more likely to stay in business.
Aside from revenue growth, expanding overseas often has unforeseen benefits, such as generating ideas for new products and services.
Making Your First Move
The obvious option may not be the best. Taking a product or service to the nearest countries, or those that speak English, may seem to give you a head start. Yet variation in tastes and demands from country to country mean you may be better off looking further afield.
“You never know, your product could be popular in Swaziland,” says David Milner, chief executive of Tyrrells Crisps. “We, for example, are the number one premium brand in France, a country with a well-established and defined food culture. As long as you adopt a clear and relevant position it is possible to create a meaningful presence abroad.”
Don’t Get Lost in Translation
Understanding the cultural differences in a foreign market can make or break your export strategy. It’s therefore essential to think local. In China, for example, creating a situation that might embarrass others will count against you to such an extent that doing business may become an impossibility.
Even seemingly trivial details can be important: you should give and receive business cards with both hands and avoid association with the number four, which is considered unlucky. Taking the time to understand such social quirks pays dividends.
Carl Hasty, director of the international payment specialist Smart Currency Business, says: “When in Rome, do as the Romans do. Ensure that your business is acquainted with local knowledge beyond numbers, figures and cold, hard market research. Knowledge of local customs isn’t restricted to social interactions but business ones too, so brush up.”
Doing business in the Middle East raises different etiquette considerations. “Companies expanding into this market should take the time to build relationships with their Middle East counterparts, ideally face to face,” says Donna Marsh of Farnham Castle Intercultural Training, which advises FTSE 100 clients.
“Business and social matters are conducted differently and it is important to understand this. The Middle East has very different attitudes to diversity, and a lack of understanding about attitudes to marriage, alcohol or public displays of affection with the opposite sex has landed many people in trouble.”
Don’t Forget the Taxmen
Tax experts say that one of the key areas often overlooked by businesses gearing up for exports is VAT. Proper record-keeping is crucial, as within three months of products being sold abroad, businesses must demonstrate that goods have left the UK and arrived with overseas customers in order to be eligible for VAT relief on sales.
“Obtaining the necessary evidence can be a challenge if the customer has arranged to transport the goods themselves,” says Liz Maher, director of Centurion Vat Specialists. “In these instances the supplier can be exposed because a customer may fail to obtain sufficient evidence that the goods have left the country at all, let alone within the required time limits.”
If you are opening up an office overseas, remember that there will be tax considerations if the business owner is not going to be resident in the country.
“You’ll need to consider the tax consequences of repatriating funds and carefully consider the level of local taxation that will be levied on profit,” says Jamie Morrison, partner at HW Fisher & Company chartered accountants. This tax varies between countries and can have a substantial impact on your bottom line.
Having to deal in foreign currencies can present a number of problems, including coping with exchange rate fluctuations and gaining access to suitable finance. To minimise risk, small businesses should gain a good understanding of the currency volatility and the market of the country to which they are exporting.
“Many businesses are unaware that they can use foreign exchange specialists to help them hedge against currency risks,” says Andrew Woolley, executive director of international payments at Moneycorp, which provides currency services.
“Products such as forward-contracts allow a business to lock in an exchange rate for a period of time ranging from three months to two years, helping to manage any potential risks when dealing with volatile currencies.”
Help is at Hand
A huge amount of state support is available for UK businesses seeking to export, and the government has announced a target of raising British exports to £1-trillion by 2020.
Your first port of call should be UK Trade & Investment (UKTI), which offers a range of services, and UK Export Finance (UKEF), a provider of financial guarantees and insurance to British exporters. The Department for Business, Innovation & Skills has a database of research on global export markets and the British Chambers of Commerce offers expert export services through Accredited Chambers of Commerce in the UK and British Chambers around the world. The Overseas Business Networks initiative (OBNi), a new organisation, says it can help you do business in 41 high-growth, difficult-to-access markets across the world.
“Using the various support initiatives from UKTI, Institute of Export and other bodies can make sure you’re profitable and successful in your new markets,” says Glenn Collins of the Association of Chartered Certified Accountants.
Get the Price Right
The price of your product must be at the right level for the local market, but you must also factor in the costs of transport and less obvious expenses such as the localisation of packaging and the cost of collecting money from customers.
“One of the hardest things to get right is the price, although following a few essential guidelines will help you cover the ‘hidden’ costs associated with selling internationally,” says Lesley Batchelor, director general of the Institute of Export.
“Think about packaging in terms of marketing and protecting the goods for each market. Translation and brand protection are key. To stay competitive focus on getting your product and price right for your target market, and remember the golden rule is ‘make it easy for your customer to do business with you’.”