Five steps to start your export business

As simple as one, two, three…

Retail export has been made possible in the world thanks to the global connectivity provided by the internet

1. Prepare your feasibility:

A feasibility is a detailed document which outlines all the important elements needed to start a business e.g. the cost of your product, the current price in the export markets and the gross margins, the growth rate of the sector, important competitor countries and major export markets, possible production method for your product, financial projections etc. For export, knowing your global competitor’s rates is very important to compete with them. You can easily do that by finding the contact information of your competitor companies from trade directories or internet and asking them the rates as a customer.

An important mistake which people make is they think that they can only start an export business by manufacturing. It is not true. You can also start exporting your product as a marketing company or a third party manufacturer. In this arrangement, you have the export order, you buy the product from the manufacturer and export it to your customer. The benefit of this arrangement is that in the beginning when you have few orders you do not have to pay the huge over heads of a manufacturing unit. Once when you start getting sufficient orders to sustain the overhead payments, then you can start your own manufacturing.

The second way in the modern world is retail export. Retail export has been made possible in the world thanks to the global connectivity provided by the internet. In the retail export, you do not sell out the products at the whole sale price, instead you sell them at the retail rate with a huge profit margin. In this case, even if your number of customers is small, still then you can reap healthy profits because of the huge margin per unit.

2. Know your HS code and the taxes:

HS code is the key thing which you will need to know for your export. HS code means harmonised system of international classification which classifies every traded item with a number like 2018.4044 and on the basis of this number, the duties and taxes are assigned to every import product. The first four numbers represent the specific category of that product e.g. plastics, metal, etc, and the second number represents the specific sub category for that product. Your customer will ask you about your product’s HS code so you should know about it.

Secondly, you should know the duties, value added tax or any other sales tax which will be levied on your product. If there is any export rebate offering, PTA (Preferential Trade agreement) or FTA (Free Trade agreement) of Pakistan with that country, you should have knowledge about it to maximise the value both for yourself and your customer as well.

3. Know about your logistics:

Logistics are the back bone of international trade. You should know how your item will be shipped to your destination country; by sea or by air. Usually, high volume items with low price per unit are exported through sea and high value but low weight items are exported through air. The cost for your shipment is measured in terms of CBM. CBM stands for cubic metre which is the standard size for which you will be charged for your shipment. You can divide your number of cartons or number of units per product which make one cubic metre to calculate the shipping cost per unit. Along with that, you will have to pay to your customs clearing agent, pay the relevant duty, hand over the relevant documents to your customer’s shipping agent and you are done. The documents which are needed are the invoice, packing list and the bill of lading.

The next step in logistics is to decide the terms of shipment with your buyer. Usually, FOB (Freight on Board) is the common method in which the seller will deliver the goods up to the port of departure in exporting country and hand them over to buyer’s shipping agent. Then from there, the importer will have to bear all the freight and shipment costs of the goods. Other possible arrangement could be EXW (Ex-works/Ex-factory) in which your customer would pick up the goods from your factory and all the costs of delivery up to his country will be borne by him; and CIF (Cost, Insurance, Freight) in which all the cost, insurance and freight of the goods will have to be borne by the exporter until the warehouse of the importer.

4. Find customers and ways to market in your target markets:

For a new entrant, who has not exported ever in his life, the biggest challenge is of finding relevant customers and companies for his/her products.There are usually four traditional ways of finding customers and marketing in export markets.

First is trade shows/exhibitions. Usually trade shows are arranged in all over the world. You rent a stall, show case your product there and get the maximum possible orders by giving discounts or other promotion tactics. The second benefit of having a stall in an international trade show is that you meet potential new customers and can convert those potential customers into actual customers by a consistent sales and marketing effort e.g. keeping in touch with them through emails, Whatsapp, sending promotional items, offering discounts and if possible, meeting them personally at least once a year.

Some financial institutions also give credit insurance to your shipment and export finance facility as well

The second way is to find the list of possible potential customers through trade organisation websites. Every trade category in the world has its own country specific or global trade organisation. You can Google the trade organisation of your relevant category by using relevant keywords e.g. trade organisation, association, etc, and check their website’s members section to find your potential customer companies.

The third way, which is a bit more traditional is to go to your local chamber of commerce and ask them to give the specific trade directory of that category or country in which you are interested, get the list of your industry specific relevant companies and then contact them with your specific product offering. The fourth way is to have a sales team, either commission based or full time, in your target country. You can find sales people through local job or classified sites.

The fifth and most modern way is to market through online B2B trade portals e.g. Alibaba.com. Alibaba.com is the world’s biggest online whole sale trade portal for small companies and traders. Ali Baba group is valued at around 200 billion dollars. If you register there and pay a small fee they also give you a verified and gold supplier status by physically verifying your company documents and office which adds credibility to your company name. You may not be able to get big orders from there but you may be able to get small orders and small fish captured together can make a big fish.

Another possible option is to market directly to international big chains in your target country/region e.g. Walmart, Tesco, or Metro, etc. You can also sell to Amazon directly as it gives the option of bulk buying without selling your goods directly to consumers. For that, you need to have a partner outside Pakistan who has a registered company in your target market. Similarly, selling at E–bay also requires to have a partner outside Pakistan in one of those countries where it is currently operating.

5. Know about payment modes:

Once you get the order from your prospective buyer then the next thing is to decide on the payment terms. The most preferred payment term is LC (Letter of Credit) in which the buyer’s bank gives you the payment guarantee in case if the buyer defaults or refuses to give you the payment on any grounds. The other possible options are D/C (Documents against Payment) and D/A (Documents against Acceptance). In D/C the documents for releasing the shipment are received by your customer’s Bank, and they will only give them to your buyer if he/she has paid the cash for shipment to the bank. In documents against acceptance, the importer agrees to pay after a certain time period e.g. 90 days once the required documents for shipment releasing have been released. The last possible option is an open account method in which the goods are shipped and delivered before payment is due, which is usually in 30 to 90 days. Usually, D/P, D/A and the open account are the riskiest options for a new exporter as there is no payment guarantee in these payment terms. However, some financial institutions also give credit insurance to your shipment and export finance facility as well. If you have the export order, they will give you the money to finance your current financial needs for export order preparation and then they will receive the payment from the customer on your behalf. DS Concept is one of the international companies providing export finance facility in Pakistan.