The Basics

Economic growth in the UK is expected to remain slow at best, but some overseas markets are witnessing double-digit expansion and spiking consumer demand. This has forced companies to reassess their target markets and explore new areas of growth and opportunity. Many believe that exporting is one way for companies to grow in a tough climate.

Businesses that export can become more competitive, more adaptable and have strong productivity and innovation. But it will be hard work. You will have to invest in your future success and this will take up management time and money. There will be the cost of travel, translation and adaptations to your products and services.

You probably shouldn't expect results in the first year (although some exceptions to the rule do achieve this). However, if you treat exporting as an investment in your business, get your research right, plan effectively and carry out your plans with determination then, not only will you have fun, but you will improve your business as a whole.

WHERE TO FIND HELP

The Global Destinations pages will also provide country profiles and helpful comments;

UK Trade & Investment will provide a range of advice and support for new exporters;

Your local Chamber of Commerce may provide training courses and services to exporters;

Talk to your accountant and bank manager as there will be an impact on your cash flow – it generally takes longer to get paid, and there will be initial costs on starting to export;

Talk to your lawyer – you may need help to review your terms and conditions of sale, protect your intellectual property – and eventually to draft contracts and agreements;

It's also helpful to talk to other businesses that have already exported. You’ll get a real-world view from them, which will help you to plan properly for your own international ventures.

Business Etiquette

Much like language, knowing how to behave when doing business overseas shows respect for local cultures and a willingness to make things work. There are many different customs and cultural norms to consider, so it pays to be familiar with the place you are visiting. Refer to the top tips in our country pages for insight into different markets.

As a general rule learn how to greet people in business meetings. In some countries introductions will be made with a firm handshake, in others you should be introduced by someone else, and some places eschew physical and even eye contact, preferring a simple head nod as an acknowledgment.

Non-verbal body language often speaks louder than words. Mimic the gestures and body language of those around you and avoid using hand signals as they have different meanings in different countries and might be offensive. If in doubt be conservative in what you wear and be prepared for time-keeping to be less important in some countries. Some people will always start a meeting late.

Currency & Foreign Exchange

Managing foreign exchange is important. Companies dealing in overseas markets will have to use foreign currency at some point but volatility in the markets means forecasting costs for the year ahead can be full of risk if a currency value changes dramatically. As one company director told Insider: “I’ve heard many economists and foreign exchange gurus speak, and without sounding cynical, nobody has an idea what it going to happen.”

As a solution most companies try and hedge their currency risk, which can be done in different ways. Forward contracts are agreements to buy and sell an amount of currency at a given time, at a certain rate. They are a common way of managing risk when you are confident a deal will go ahead, because you have to proceed with the contract and because the rate it fixed you can’t benefit in any favourable currency movement.

Another way is to set up currency options, which are more expensive but give you the right, not the obligation, to buy or sell a certain amount of currency at a certain rate and on a certain date. This will suit a business entering into a deal they might not win, such as a tender. It also offers protection from unfavourable movement in rates, as well as the flexibility to benefit from advantageous ones.

Getting Paid

Companies trading overseas should treat customers the same as they would in the UK. Carry out a credit check before you enter into an agreement and start trading cautiously; as you get to know a business it will be easier to move along the security scale from pro forma invoices to open account trading via intermediate steps such as letters of credit, according to UK Trade & Investment.

The safest method of getting paid is advanced payment. But what’s low risk for the exporter is high risk to the importer and in some countries businesses need to get a letter of credit to get payment out of the country. A letter of credit is a guarantee of payment and although it can be a challenge to negotiate, one of the big things it tells you about a customer is that they are credit worthy.

A standby letter of credit can also be used. A business can open one up to the amount required for a trading account, but hopefully it will never get used. Businesses can trade on an open account basis, raising invoices and getting paid. If the customer did default, then the letter of credit can be cashed in.

Export credit insurance – where insurance is provided to cover against the default of trading partners – can also be used to protect payments. There is a growing list of providers in the market although Insider understands it can be a challenge for small businesses to access this kind of support.

Intellectual Property

Protecting your product when expanding overseas is of paramount importance. The UK is widely regarded for its production of high-end technology and systems and many emerging economies would love to acquire this kind of expertise. Of course, there are ways in which this can be done on a formal basis through technology sharing agreements and acquisition, but the fact remains that any business considering foreign trade should consider the implications on their trade marks.

Issues to be aware of include the ‘first to file’ system operated by many regions outside the UK, according to lawyers at Mathys & Squire. This means that the right to the grant of a patent for an invention lies with the first person to file a patent application, regardless of the date of actual invention. This can result in brand names being registered that may belong to a third party, leading to costly battles in order to carry on selling in that country.

While no single trademark registration exists to cover the world, the protection process can be less costly than businesses perceive. In Europe, for example, there is a community system, where companies can register a brand across all member states. This gives companies widespread access to 27 markets for much less than it would cost to file individually. As many firms cite Europe as the first port of call for exports, the potential of such a system is clear.

Legal Issues

The letter of the law will apply to the sale of good overseas, just like it would in the UK. It is important that companies know what they are getting into, and are happy with the terms agreed between parties. Many businesses have concerns that they will need specialist advice for dealing with legal issues in a particular market and this is broadly true. If you are entering into an agreement governed by the law of that jurisdiction then the advice points in this direction.

But it’s also worth considering that if you have quoted to supply something, it’s straightforward and you’ve outlined the extent to what you are supplying, price and payment terms, conditions under which you will supply then their risks are reduced because international contracts are very similar under anyone’s jurisdiction. They have to be otherwise the system wouldn’t work.

The language in which the agreements are drafted is also important. While English is widely used for business documentation, some documents may be written in a foreign language and these will need to be accurately translated before being signed.

Languages

English might be the international language of business, but that doesn’t mean you can leave your phrase book at home. Our place in the world has meant that some companies assume they can walk into a new situation abroad and treat it like they were in the UK. In many countries it pays to learn some appropriate words and phrases to come across as polite, well researched and respectful to your hosts and potential business partners.

A simple greeting, for example, can warm up an introduction, presentation or meeting in more ways than you would think. “If you make the effort, people appreciate it,” says Becky Toal from Crowberry Consulting. “I got a round of applause recently when I addressed a conference in Turkish. Then I carried on in English, but they really did appreciate it.”

In many cases native languages will be used on official documents. In this case it pays to seek the advice and service of a specialist translation company to enable you to understand what you are getting into. While the internet offers the chance for companies to translate material, where legal documents are concerned, it is important to make sure that everything is covered off in a language you understand.

Logistics & Freight

The growth of overseas manufacturing has led many businesses in the UK to operate design and back office functions at home, while operating production facilities abroad. Low-cost bases in China and South East Asia mean companies can get their goods made for less than the UK, but the cost and logistics of shipping have to be factored into the equation. For companies exporting their goods to market, this is also an important consideration.

Buying and selling across different jurisdictions is governed by Incoterms, which are a series of rules of engagement, published by the International Chamber of Commerce. Recent updates to the legislation mean that some obligations have changed. Free on Board, commonly known as FOB, is no longer applicable for container-based cargo. The term applied to sea and inland waterway shipments, where the exporter was responsible for getting good on board the ship.

Under the latest set of Incoterms, the goods now have to be delivered to the carrier, which can take place at the cargo handling terminal or even at the company’s premises. This has the potential to reduce the costs of the exporter by eliminating a stage of the overseas sale process. But the cost of shipping goods varies, with factors such as political stability, supply and demand affecting prices on an ongoing basis. Freight forwarding companies and international logistics providers will provide more information on the cost and efficiency of shipping to different areas of the world.

Marketing

Selling products overseas should be an integral part of the company’s overall marketing plan. It should support the strategic goals of the business and meet specific international objectives over the next one to three years. What resources will be needed and what actions will the company need to take to ensure success?

When looking at the four traditional aspects of marketing, it becomes clear that additional factors need to be considered, according to UK Trade & Investment. Is the product suitable for the specific overseas market? How will it be priced and will currency movements affect the costing of products for new customers? Which overseas markets will you target, where are the best opportunities, what distribution channels will you use and what competition is there? In order to promote the product properly you will also need to understand how buying decisions are made. Consider language and cultural influences on everything from pack size and design, to promotional methods and media.

Additional factors to consider include: people – who will consume the product or service as the market may be divided differently; process – how will the product reach the end user, how will you get paid, what documentation will be needed? And lastly physical evidence – the strategy should include effectively demonstrating quality and satisfaction to potential customers. Above all, the key to successful international marketing is effective research.

Raising Finance

Companies need to raise finance for overseas trade as much as they do for trading in their home market. The difference here, though, is that the time lag for getting paid tends to be longer for international orders, and this slower cash flow is one of the major barriers for companies selling overseas, according to UK Trade & Investment.

Gaining access to working capital can finance a project that is in the workshop, being built and then floating across the sea, for example. While all of this is going on you have spent money but not seen much in the way of payment. It can be several months before a project can go cash positive.

The types of finance available are typical of funding lines available to those in the UK. What’s changed is banks’ attitude to risk in line with increased capital restrictions and protection of balance sheets. Anecdotal evidence suggests that before the credit crunch finance could be raised on the basis of a letter of credit; now some want to see that a company has performed on that letter of credit before advancing payment.

The perceived risk for the bank will also vary depending on which country you are going into. In summary, the challenges are as diverse as raising finance in the UK and each case will be different.