CASE STUDY
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Executive Summary: A professional services and products company has exported to a handful of countries, but international trade has not been a major focus.
Challenges: Company is an “accidental exporter,” in that they are reactive to overseas orders but they have done little to solicit them. Company has no export compliance process and is at risk. In addition, company is not utilizing tools and resources that could help them be more competitive, manage payment risk and more.
The KSBDC and client reviewed the Schedule B search engine to determine an appropriate commodity code for sample products in the company’s offerings. The company is outsourcing compliance and export documentation to another firm, their freight forwarder. We discussed how the company is the “exporter of record” and thus is ultimately responsible for any errors, intentional or unintentional. The company was cautioned against overseas customers processing the export documentation, as they may choose a Schedule B number that results in a lower tariff – and the company would be responsible – or even face fines or their import rights for that country being terminated.
The KSBDC and client reviewed a number of databases, including the ITC Trade Map, which shows imports of a commodity in tonnage and dollars, as well as tariff information. We also demonstrated Michigan State University’s Global Edge products, such as their Country Comparator and the Market Potential Index (MPI).
Once we had determined a potential market (an example market only – more work remains to be done with additional databases and analysis), the U.S. Commercial Service’s Gold Key program was discussed, in which the Service provides searches and introductions to vetted agents, distributors and companies overseas and facilitates meetings. We discussed utilizing State Trade Expansion Program (STEP) grants to fund the already nominal cost of these programs.
The KSBDC and client discussed 2020 Incoterms. Client is using EXW, or Ex Works, which means that the buyer is responsible for picking up the goods at the company’s factory. We discussed how “C” terms are more common in international trade and would give the company far more control over how goods were packed, loaded, insured and handled, as well as ensuring that the company remained competitive. Recommended that client work with their freight forwarder to determine costs of utilizing “C” Incoterms, in order to quote accurately.
The KSBDC and client discussed trade finance topics. For example, the company can utilize SBA or EXIM Bank working capital loans to provide funding for large international orders. SBA Export Express products can help fund an international expansion, whether that would be in the form of travel, trade shows, overseas websites and marketing, or even a physical plant expansion to enable enhanced capacity.
The KSBDC and client discussed utilizing EXIM Bank foreign receivables insurance to cover up to 95% of overseas orders on open account. Currently, the company is asking for as much as 90% payment in the form of cash in advance, but this is usually not the preferred payment method of many overseas buyers, most of whom are accustomed to open accounts with their vendors. EXIM Bank guaranties allow for flexibility and confidence. Recomended that client work with their bank (if it has an international desk) for assistance with letters of credit and receivables guaranties, in concert with EXIM Bank.
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