A quick guide to exporting
Making the decision to move towards internationalisation is not easy for any company. There is no doubt there are many advantages to exporting abroad but before taking that step there are also risks that need to be assessed. This article is intended to be a brief guide providing advice and ideas on how to export, why to export, the procedures involved and the documents required for exporting. I hope it is helpful!
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Why export? The benefits of exporting
There are many and varied reasons for exporting depending on the economic context, the company’s circumstances, the product for sale, the resources available to the exporter and a long list of other things.
Here are some ideas about the benefits to be gained from internationalisation:
- Innovate or die. Many companies succeeded in mitigating the effects of the fall in domestic demand during the financial crisis due to their sales outside Spain. Depending less on the domestic market has made them stronger and more robust.
- Boost creativity. Your product may be tremendously successful on the domestic market but to succeed abroad something different is required. Sharpen your wits.
- A world of opportunity opens up: new clients and new markets will definitely bring new business opportunities.
- Globalisation. Different time zones, customs, languages, etc. The experience of working with foreign suppliers and clients provides an understanding of multiculturalism in business giving the company a competitive advantage.
- Economies of scale: making better use of resources in order to reduce costs.
- And, of course, to grow in size, in profits, in brand recognition and as a company.
Export procedures. How to begin exporting
“Start by doing what is necessary, then do what is possible, and suddenly you are doing the impossible”.
Francis of Assisi
What should a company consider before beginning to export?
- Ask for advice! There are a host of independent and public bodies that have specific programmes aimed at helping companies with their process of internationalisation. A good place to start is to make enquiries with the Institute of Foreign Trade or the Chamber of Commerce.
- Product and market. Is my product exportable? Does it add value? Does it have potential? Have we done market research and studies?
- Attracting clients. How? By attending international trade fairs, trade missions, industry conferences and through marketing and advertising, etc.
- Human capital vs. company size. It is not only large companies that export. Those companies with staff who are trained and qualified with a view to internationalisation can be just as successful as a larger company, if not more so. Invest in your people!
- Financing. Other than negotiating with your bank (which may not prove easy) there are options such as ICO or ICEX lines of finance, COFIDES (the state and privately owned Spanish company for the financing of development) financial products, or even crowdfunding.
The key to understanding foreign trade
“Commerce changes the fate and genius of nations”.
Poet and Professor of History (1716- 1771)
Incoterms have a simplifying function, they facilitate negotiations between buyer and seller as they clarify certain points relating to international trade such as who pays for transportation, where the goods are delivered, who takes care of customs costs, etc.
Which is the most suitable Incoterm? This should be agreed between buyer and seller. However, I always advise my clients that they should be the ones to negotiate and to control the shipping in their operations. If they do, they are likely to be able to secure better conditions and, above all, they will have control over their shipments.
Hence, selling under CFR/CIF conditions is ideal for exporting whereas buying under FOB/FCA conditions is ideal for importing.
Equally, DAP and DPP Incoterms involve the exporter negotiating shipping and depending on the circumstances of the consignment they may also be advisable.
Means of payment
Choosing a means of payment is also a part of the negotiation between buyer and seller. Depending on the balance of power between the two parties, the amount involved in the operation, the level of trust between the two and any requirements of the destination country the means of payment will vary significantly, from a simple upfront payment to a letter of credit or bank intermediation (documentary remittance).
Which means of payment is best for the exporter? Upfront payment, is best, of course.
Transport and logistics
In order to carry out a foreign trade transaction, i.e. export to a third country outside the European Union, you will need the services of a freight forwarder and a customs agent which may be the same or separate organisations.
The role of the forwarder, in short, is to negotiate the logistics of the operation: to organise transportation of the goods from the exporter’s headquarters to the final destination, to carry out customs procedures and to offer advice (or at least they should) throughout the operation.
Basic export documentation
“Trade isn’t about goods. Trade is about information. Goods sit in the warehouse until information moves them”.
C. J. Cherryh
The key documentation in all international trade operations can be classified as follows:
The sales invoice, the packing list, certificates of origin, ATA carnet, etc.
We will always have at least the first two documents which should be issued by the exporter, although sometimes the invoice and the packing list will be incorporated into one document. The other documents may be necessary depending on the type of goods and their final destination, for example the importer may need a certificate of origin in order to benefit from tariff relief in the destination country.
Depending on the mode of transport, we basically have the bill of lading, the air waybill, the land waybill or CMR or multimodal bills of lading. In all cases, the documents are issued by the forwarder or by the shipping company or airline.
Specific documents and certificates
Depending on the type of goods and/or their destination, other documents may be necessary such as a health or veterinary certificate, an export licence, a quality control certificate (called SOIVRE in Spain) and many others.
The Single Administrative Document (SAD) is the form presented to customs for goods clearance. It is effectively a tax declaration, hence the importance of the customs agent being competent in preparing it, correctly identifying and classifying the goods, their tariff headings and the amounts to be declared.
Depending on the type of operation we may come across other documents apart from the SAD. These may include the transit document or customs declaration documents found in Spain such as the DAE (Export Accompanying Document) and the DVD (a declaration linking the goods to a customs warehouse or a non-customs warehouse), etc. The forwarder or customs agent will advise the exporter on the customs documentation required depending on the operation and will process it.
Exporting and taxation
The exportation of goods to a third country (outside the European Union) is subject to but exempt from VAT and so the exporter does not pay the tax. However, the exporter does have to inform the Spanish Tax Agency of their operations and must submit a SAD and various other forms to the authorities.
Your export operation in 8 steps
This are the 8 steps to ensuring your exports arrive at their destination efficiently.