Exporting: The Basics

The two most common methods of exporting are: indirect selling and direct selling. Indirect selling is when a business contacts an export intermediary such as an export management company like XM Works, Inc. who assumes the responsibility of finding buyers, shipping the goods, and receiving payments. In the direct selling method of exporting the domestic firm deals directly with foreign buyers.

The key factor in deciding the whether to export directly or indirectly is the amount of resources a company has to spend on the process, mainly money, time, and knowledge of the foreign markets and export process. The way a company choses to export their products has a significant effect on on the export plan and marketing strategies. There are four general approaches that may also be used jointly in the process. They are:

1. Selling products to domestic buyers who then export the product abroad without the explicit knowledge or consent of the seller. In this case the domestic buyer has assumed all risk and finds an oppurtunity to sell the goods abroad.
2. Actively seeking domestic buyers to export the products abroad. In this case the domestic buyer still assumes all risks associated with the exportation of the products.
3. Exporting indirectly via intermediaries, such as export management companies. The intermediaries utilize their knowledge of foreign markets and established foreign contacts to sell the products abroad while still leaving considerable control over the process to the exporter.
4. Exporting directly. This is the most difficult and resource-consuming method of exporting. The exporter assumes all responsibility of every step of the export process including: market research, planning, discovering distribution channels, and collecting payments.

In deciding which approach to use a company must look closely at it's available resources and goals it wishes to achieve in exporting.

Know Your Tariff Rates

Before exporting to any country it is necessary to determine any applicable tariff rates or other import fees that may be imposed on the goods by the importing country. A tariff is a tax imposed by governments on the value of imported goods. The purpose of the tariff is to increase the price of imported goods in the importing country markets thus making them less competitive with domestic goods. The tariff rate is determined at the time the goods are imported and other fees such as state and sales tax often apply in addition to the tariff.

To determine the appropriate tariff rate that will apply to imports there are two general steps to follow:

1) Find your product's HS or Schedule B number. The US Census Bureau provides an online website to help classify product's Schedule B Codes.
*Note that duty amount will also depend on the terms of trade that have been negotiated with the buyer, such as FOB, CIF, etc.

2) Using your product's HS or Schedule B number, you will be able to find the applicable tariff rate. Click here for country-specific tax information to determine various tax and tariff rates for 97 countries.

The Dollar's New Low is the Euro's New High

Today the euro reached a new high against the dollar following a revision of EU inflation rates. The rate was revised higher, as the harmonized index of consumer prices from 3.5% to 3.6%. This comes as an unanticipated record high in the inflation rate growth for the euro.

The rise prompted the euro to hit $1.5966 leaving the question of when it will break $1.6, on the horizon, and what will happen when it does. Inflation data out of the US will be what to watch for today, and if comes out lower than is expected the euro very well may reach $1.6. Traders are expecting central banks to intervene if this occurs. The strengthening of the euro was not just demonstrated against the dollar but also hit a new high against the pound.

So why does the euro continue to prosper? One reason is the expectations of lowering rates by as much as half a point by the Fed, which means that the European Central Bank may be able to maintain its rates for the remainder of the year therefore making the dollar less attractive to investors.

Freight Forwarders

What is a freight forwarder and why do you need one?
An international freight forwarder acts as an agent to an exporter moving cargo from "dock-to-door" to an overseas destination so the exporter does not have to worry about all the logistics details. They are licensed by the International Air Transport Association and the Federal Maritime Commission to handle air and ocean freight.
They provide many important services including:

• Provide advice on exporting costs, such as freight costs, port fees, insurance fees, special document costs, and consular fees.
• Prepare and file documents such as the bill of lading.
• Suggest appropriate modes of cargo transport.
• Reserve the necessary space on vessels, trains, aircrafts or trucks.
• Communicate with overseas customs brokers to ensure compliance with customs regulations on goods and documents.

To find a freight forwarder you can check local business telephone listings or, you can visit the National Customs Brokers and Forwarders Association for information on their members.

Global Stocks in the 1st Quarter: The Poorest in Years

In the first quarter of this year the Dow Jones World Index (excluding the US) fell 8.7% in dollar terms while the Industrial average dropped 7.6%. It is clear that the US economic crisis has had a widespread global impact; interesting since in past years foreign markets have managed to remain relatively unscathed during times of economic hardship in the US.

So, why now have foreign markets been so dramatically affected by the recent poor performance of US? The ripple effect shows how distant markets have become increasingly interconnected in recent years. When one market experiences a slow down, chances are most others will feel it too.

Some of the worst hit have been India and China, whom last year had experienced considerable growth, now have shares down in both countries by more than 20%. It comes then as no surprise that Japan, whose economy slowed down last year, has shares falling by 18%. Even European economies as well the emerging markets that had been performing so well last year have experienced similar declines.

There does remain a strong forecast for positive growth in the World Economy. The IMF expects a 4.1% expansion this year and 6.9% for developing countries. However, most investors have not been relieved by these projections, questioning if this increased correlation between international markets could act as an avenue for the spread of economic slowdown throughout the global market, especially if there is a US recession.

Also, the continued weakening of the dollar has caused problems for foreign countries in many ways. For example just this year the dollar has dropped 10.5% against the yen. For the Japanese this has meant their exports are more expensive in dollars and therefore have become less competitive. Europe has experienced similar woes as worries increase that they more powerful euro will impact the ability of companies to compete against less expensive foreign goods.