Category Archives: Exporting

Export University In Honolulu

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Want to learn how to export? Need to train employees about getting into foreign markets? Interested in doing it in America’s tropical paradise?

The Export University course will be to starboard.

The Export University course will be to starboard.

The Hawaii Pacific Export Council (HPEC), both a non-profit and an advisory committee to the U.S. Department of Commerce, has announced its 2013 schedule for its acclaimed and comprehensive Export 101 training seminars: Exporting From A-Z. This will be a 4-part course offered May 20, May 22, May 28 and May 30 in the afternoons, conveniently located at Foreign Trade Zone #9 on Honolulu’s waterfront. The course will cover all major aspects of the export business and will help you develop a global strategy for your business. The course will be taught by true experts in their fields who will help you build business plans for attacking your best potential markets. Our faculty includes international marketing experts, lawyers working in foreign practices, bankers knowledgeable about export finance, and state and federal officials who can help you enter foreign markets.

Export 101 costs $150, but small businesses may be eligible for a 50% discount if they can meet the requirements for SBA’s State Trade & Export Promotion (STEP) grant program. You will find out how to qualify for the discount when you register. Whether you pay half or full fare, it is a decent risk. Small business exporters who have taken Export 101 in Hawaii have already generated more than $1 million in extra sales!

One of the best decisions I’ve made in the last year. Export University changed our LIVES.
~ Hawaii small business owner & Export University 101 graduate

BREAKING NEWS! Small businesses that complete Export 101 and an export business plan may qualify for up to $2,500 to help with the their next foreign marketing trip. This will be funded through a cooperative agreement with the U.S. Small Business Administration in partnership with the Hawaii Department of Business, Economic Development & Tourism. The funding comes from SBA’s STEP grant program which HPEC is helping to implement in Hawaii.

A special Export University 201-level course – E-Commerce For International Sales – is scheduled for May 31, also in the afternoon at the Foreign Trade Zone. James Kerr of SuperGeeks, Katie McMillan of TEDxMaui and Peter Kay of Your Computer Minute will give you pointers for using websites and social networking to help build international sales. Remember, as soon as you put up a website, you are in international marketing so you might as well take advantage of it. The cost of this seminar is only $15. And, again, you may qualify for a 50% STEP discount.

theme462_logoYou can get more information on our Export University course schedules here. Better yet, just go ahead and sign up at www.tinyurl.com/EUMay2013. If you have questions, send them to Lesley Harvey. And, should you need further incentive, there is a combined price for both the Export University 101 course and the 201-level seminar of just $155. I’ll see you there! In fact, I am teaching part of the 101-level course.

HPEC’s Export University programs are among courses that are offered nationwide by export councils. If you can’t make it to Hawaii next month, check out what is being offered elsewhere.

Chinese Buyers Coming To Hawaii & Idaho

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The Western United States Agricultural Trade Association (WUSATA) has announced that it will bring a foreign buyers mission from China to the United States this summer. The Chinese buyers will be pre-screened by WUSATA, with help from the U.S. embassy and consulates in China, so you have a reasonable assumption that they are the real thing. U.S. agricultural products suppliers can sign up to meet with the Chinese buyers during stops in Boise, ID (August 5) and Honolulu, HI (August 7-8). Go to the WUSATA website to find out more and to register for meetings. Registration is free.

Will China buy these?

Will China buy these?

WUSATA advises that the buyers will be looking for suppliers and new products in the following categories: foodservice products, natural/health, nutraceutical, organic, produce, and retail products. Examples might be fresh fruit, specialty foods, natural, organic and healthy foods, wine, dairy products, fortified beverages, nuts, oils, spices, sauces, dressings, coffee and snacks. To be eligible to meet the Chinese buyers, your product must be at least 50% of U.S. agricultural origin by weight, exclusive of added water and packaging. Ingredients must be farmed, fished and/or forested in the United States.

China is the top agricultural export market for the western United States and is likely to retain that title for years to come. Not only is the Chinese consumer economy growing, but recent scares about the safety of China’s own food products has led to a scramble to find reliable overseas sources of supply. American products are trusted and are highly sought after by Chinese consumers. While I am normally quite cautious about advising small companies to go into China, food product sales – requiring no investment in China – seem a tempting way to enter the market. The major problem to be faced by small producers is likely to have sufficient supply to satisfy Chinese buyers.

A New Trade Department? Really?

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President Obama has been muttering about a new Department of Trade for a couple of years now, but with no discernible push to make it happen. In the late weeks of last year’s election campaign, he turned it into a broader Department of Business which sounded an awful lot like the existing U.S. Department of Commerce. Silence reigned between the election and last week’s transmission to the Congress of the President’s budget proposal for 2014. Sure enough, back on page 50, you will find the undying proposal for the not-yet-living department.

There is no denying that the United States needs a trade ministry parallel to those found in most major trading countries. Our present system, diversifying trade decisions throughout the executive and legislative branches, is extraordinarily cumbersome. My toughest negotiations were always between agencies in Washington – not with other countries, who were usually rational and polite.

But it still isn’t entirely clear what kind of department Obama wants to create. In fact, in the budget proposal, the new department isn’t even dignified with a name, leading one to imagine that there may be either confusion or fighting within the White House. Here’s what the 2014 budget proposal says would go into it:

… the new Department would include the Department of Commerce’s core business and trade functions, the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation, and the U.S. Trade and Development Agency. It would also incorporate related programs from a number of other departments, including the Department of Agriculture’s business development programs, the Department of the Treasury’s Community Development Financial Institutions Fund program, the National Science Foundation’s (NSF) statistical agency and industry partnership programs, and the Bureau of Labor Statistics from the Department of Labor.

That sounds like more than a trade ministry to me. Most of SBA’s work, for instance, has nothing to do with either exports or imports. And I would like to see a definition of which agencies are included in “the Department of Agriculture’s business development programs”. Would the Foreign Agricultural Service and Commerce’s U.S. Commercial Service be merged? Hard to say.

An issue that has many pundits worried is exactly where the Office of the U.S. Trade Representative will fit into the hierarchy of the new department. USTR’s current access to the President as part of the White House can be quite useful to both the President and the negotiators. But where will USTR land in the new organization? Will they be grafted onto the top of the organization chart, potentially supervising programs outside their core competence? Will they be merely part of the department specializing in negotiations with others interposed between USTR and the White House? Will other departments recreate their trade policy operations, so that the interagency trade policy mechanisms need to be recreated too? Surely, someone is thinking about all this and more, since the budget wizards came up with a fairly precise number for how the new department will save us money.

These changes could generate approximately $3 billion in savings over the next 10 years, with roughly half of the savings coming from reducing overhead and consolidating offices and support functions. Additional comparable savings would be generated through programmatic cuts once the synergies from consolidation are realized.

We will just have to wait and see if the Administration actually pushes for a new department before we find out what kind of beast it will be. It could just be a stalking horse that never makes it to the track.

Crossing The Russian Border

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Fun at the Russian border.

Fun at the Russian border.

There is a reason that the Russian import market doesn’t see many small companies. Just wait until you see the problems the big boys have to put up with. The World Economic Forum/World Bank/Bain & Company study on supply chain problems in international trade makes it clear: it can be very tough to get your products into Mother Russia.

The study focuses on an unnamed U.S. computer company that sells desktop computers, laptops and spare parts, some of them new, some refurbished. The company is said to have the 6th largest market share of computer companies that sell to consumers in Russia, so they must be pretty big. But being big doesn’t save them at the Russian border where, depending on the products being shipped, documentation issues and import licensing requirements can cause delays ranging from ten days to eight weeks. That will put a dent in your profit margin.

Products built for wireless communications such as Bluetooth generally have an easy time of it. Shipments of wireless mice, keyboards and the like don’t require import licenses. But computers with wireless capabilities do need licenses, whether desktops or laptops. And, worse, you can’t apply for these licenses until the computers are at the border awaiting entry. First, they have to be “tested”. I don’t know if this is rigorous scientific testing – or border guards watching YouTube – but it can take two weeks. Second, your importer needs to get an import license from the Ministry of Industry & Trade. This, of course, requires presentation of copious documentation. Let’s see, there is a purchase agreement, a certificate of tax registration … Altogether, testing and licensing can take six weeks to negotiate. Your importer also has to pay $300 for the testing and another $80 for the import license.

Security fears on the Internet and elsewhere mean that many computer products today contain an embedded cryptography capability, which, in turn, attracts the Russian security apparatus. The security guys apparently want some of this stuff (routers, some computers, VPNs) because they have set up an “expedited” clearance process. It only takes about ten days to notify the Federal Security Service and get their approval, bypassing the Ministry of Industry & Trade. Others aren’t so lucky, meaning they take about four weeks to get approved by the security guys and then they can start on another four weeks at Ministry & Trade. Better allow for two months of down-time at the border before you can start selling your products. And it gets worse if you are selling something like a PC that is both wireless-capable and has built-in encryption.

Some products fall afoul of Russia’s reference pricing system. For these products, the customs inspectors ignore the actual prices on the invoices – which they assume are false – and rely on a schedule of minimum import prices on which they collect an ad valorem customs duty. This creates a price floor for applying duties and is applied on a discretionary basis, so your importer cannot predict when he will have to pay more than he had planned for based on the invoice value. The importer is in a double bind. He can challenge the use of the reference price, which will further delay the shipment and require a sea of supporting documentation to prove his original lower price (things like bank documentation, consumer price lists verified by officials in the exporting country, statements from the seller). Or the importer can just accept the reference price and pay the higher duty. But if he accepts the reference price too often, he is open to investigation for customs fraud for continually trying to sneak goods in at a lower price. It isn’t easy being a Russian importer.

Shipping To The Saudis

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It looks straight-forward. Tariffs are low or even zero in many Middle Eastern countries, but that can prove deceptive. It’s the non-tariff measures that are likely to get you in trouble. At least this is the conclusion of a case study for selling computers that I found in the World Economic Forum/World Bank/Bain & Company study of supply chain problems in world trade. This particular case reports what a major manufacturer of personal computers, servers, portable devices and more encountered as they developed Middle Eastern markets, particularly Saudi Arabia. As is their practice, the authors of the study didn’t identify the company. The firm sells in over 150 countries with annual revenues above $15 billion. They have facilities and employees in more than 50 countries. Before any readers with SMEs stop reading, let me remind you that small firms can experience the same troubles – only with fewer resources with which to solve them.

Our company’s global sales plan has targeted the Middle East and Indonesia:

The Gartner Group forecasts that PC sales in these markets will grow at a pace of better than 20% through 2016 to some 34.5 million units. In none of these attractive new markets do traditional quotas and tariffs present a significant barrier. In the Middle East, duties on imports are uniform and low, at just 5%. As a party to a free-trade agreement with China, Japan and India, Indonesia accepts most shipments of imports duty free.

It can take a long time to get your product to Riyadh. (photo: BroadArrow)

It can take a long time to get your product to Riyadh. (photo: BroadArrow)

That’s the bright side. Strict rules of origin, standards and inspection requirements, local content rules and other non-tariff measures can create challenging barriers. Take this Catch-22 between Saudi Arabia and Egypt: The Saudis require that importers apply for certification and get samples tested BEFORE the products they buy are actually manufactured. The Egyptians, just across the Red Sea, require exactly the opposite – nothing can happen until AFTER the goods are manufactured. Things might get easier in either market if your company is well-known and large. Smaller companies may face up to three weeks of waiting while their goods are certified to local product standards. That costs money.

Product labeling is a constant issue in the Middle East where most labels must be in Arabic. The source of the problem is back at the factory where none of your workers may read Arabic and so won’t realize that they are putting on the wrong labels for a particular shipment. The mis-labeled products can then be held up for weeks while the misunderstanding gets sorted out – and the products get re-labeled. (The case study doesn’t even mention the snafus that can happen if a label or documentation even hints that the company might trade with Israel.)

Saudi Arabian government agencies are known to suddenly issue new rules and regs with little or no warning – and to enforce those new rules rigorously from the moment of announcement. This, unfortunately, catches out any shipments that are already in process, especially those that are moving by sea. And it hits heaviest on smaller suppliers who may not have a staff that is constantly watching Saudi Arabian rule-making.

Saudi customs stations at the land borders shut down during holiday periods, which can catch out any shipments entering the country by road. A holiday festival like Eid can keep the offices closed for a week – producing a steadily-lengthening line of tractor trailers waiting to get in. Experience tells our computer company that it can take an additional two weeks before Saudi customs catches up with the backlog and the last truck in the line can start rolling again. Pilferage on truck shipments into Saudi Arabia is normally about 1-2%, but this can multiply during the holiday stoppages at the border. Our company has learned to warehouse all Saudi-bound shipments in Dubai until agents in Saudi Arabia tell them that the border backlog has cleared. This, of course, adds warehousing to the shipping costs and delays deliveries to Saudi customers.

Pilferage aside, there is an unexpectedly high damage rate for truck shipments into Saudi Arabia. This is due to lack of decent equipment at the border stations. Cargoes have to be unloaded from the trucks for inspection and the border stations often don’t have sufficient forklifts to cope with heavy pallets. This leads to dismantling shipments by hand with far greater chance of damage (and pilferage) for high-valued tech items. The damage rate can run upwards of 5% at the Saudi border (compared to less than 1% in Europe or the United States). Damage and pilferage together probably raise our computer company’s costs by 6-9% for movements from Dubai to Saudi Arabia.

Our company has found Dubai to be a congenial home for its Middle East operations, but Dubai does have one big drawback. By choosing to ship products to Dubai for re-distribution to other markets, including Saudi Arabia, shipping times to end users in other countries are about 50% higher than if the company could ship directly. But they will only do that if the non-tariff hindrances in markets like Saudi Arabia can be reduced first.

As mentioned above, our computer company is also putting a big effort into the Indonesian market. Again, they are not unduly concerned about customs duties. (The study only hints that our company manufactures in China with which Indonesia has negotiated a free trade agreement.) Customs clearance issues in Indonesia mean that a shipment that has to travel from Shanghai can take four weeks before it is in the hands of the customer in Jakarta. Demurrage charges add up quickly in Indonesian ports, too. Each container is charged $200 for each day of waiting during the first week – and a whopping $600 a day thereafter – even if the delay is caused by the Indonesian Government. It can be tough out there.

Intangibles

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intangibleIntangibles are like dark matter or dark energy in international trade. They make up a major portion of the balance of payments and trade just like the usual physical exports, but you can’t see them or feel them, or usually even know that anything is happening. We took a superficial look at one sort of intangible yesterday: live broadcasts of sporting events or entertainment. But they are only a small, if sometimes visible, intangible.

If you are determined, just like an astronomer looking for a black hole, you can ferret data out of the U.S. Census Bureau that reveals U.S. trade in intangibles. The latest detailed data is for 2011. Census is still figuring out what happened in 2012. Even the language of trade in intangibles is different from “normal” trade. Instead of exports and imports, the statistics record receipts and payments. Same difference.

What are the intangibles in trade? The big items for the United States concern royalties and licensing fees – and the big dog is license fees for using industrial processes. That’s essentially buying the know-how for how to make things. We are talking folding money here: nearly $44 billion in U.S. exports in 2011 and $22.6 billion in imports, for a pretty good positive balance. Our big customers are Ireland and Switzerland, paying us $6.3 billion and $5.6 billion respectively. Whose know-how do we buy? Japan, by far, selling us $6.2 billion in 2011. Nobody else comes close.

When was the last time you bought software? The answer is never. What you buy is a license to use software. So it shouldn’t surprise that our next intangible is general purpose software. Those licenses add up to more than $39 billion in U.S. exports and only $5.6 billion in imports. Our top markets are Ireland ($6.9 billion) and Japan ($4.6 billion). China buys $947 million, which may be an indicator of the level of intellectual property protection. Our top supplier of software is Germany with $1.7 billion, followed by Ireland and Switzerland.

The right to use a trademark can be an intangible trade item. Any time you travel you see American trademarks in almost every country. Unless they are used exclusively by the original company – or unless they have been pirated – the right to use those trademarks has been paid for by somebody. Big time. The United States earned $15.7 billion from trademark licenses in 2011. And we paid out $4.8 billion. Our biggest customers were Switzerland, Japan and China ($2.4 billion, $1.8 billion and $1 billion). Could it be that Beijing has gotten the message that it isn’t nice to steal trademarks? We spend the most for trademarks in Switzerland ($1.8 billion).

We talked about live broadcasting yesterday, but what about all those Hollywood blockbusters and those old TV shows in syndication? Talk about a big business. The Census Bureau calls it “film and television tape distribution” despite the fact that few of us use tape anymore. Whatever you call it, it was a $14.3 billion export industry in 2011. The United Kingdom scarfed up $2.3 billion in movies and TV shows, followed by the Netherlands and Germany. Downton Abbey must not cost that much because we only bought $145 million from the Brits in 2011. Surprisingly (to me, at least), we spent $1 billion in Brazil! Anybody know what that’s about?

Have you eaten at that KFC across from Mao’s tomb in Beijing? Somebody is paying a franchise fee to be there. The United States earned $5.5 billion in francise fees in 2011 and paid out only $154 million for foreign franchises coming into the America. (There used to be a Wienerwald restaurant in New Jersey. Wonder if it is still there?) Belgium and Luxembourg pay us the most in franchise fees ($548 million), followed by the United Kingdom ($468 million) and China ($358 million). We pay out $65 million to France.

Being of literary bent, I am gratified to see that my fellow Americans earned $1.3 billion from foreign customers on royalties and fees for books, records and tapes. We must not read or listen quite as much because we only paid out $945 million. Given language differences, it isn’t a surprise that our main customer is the United Kingdom, which paid $221 million in 2011. The British actually ran a bilateral surplus with us here, as we paid them $301 million in royalties and fees. Wish I knew how much of that was for Harry Potter books. Next up were the Irish, to whom we paid $115 million.

There you have it. The complete scorecard for trade in intangibles. Actually, the rewards are tangible.

Gaming Exports

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What does watching college basketball have to do with American exports? That question was taken up last week by Chris Higginbotham in a blog post for the U.S. Department of Commerce. Timely, except that my team lost in the first round of the men’s NCAA Tournament. The less said about that, the better.

Higginbotham’s point was that, while most of us think about exports as something physical that is sent out of the country, and some realize that many services can be exported, there are still some exports that might surprise you. In Hawaii and other tourism areas, we know that every foreign tourist who arrives on our shores represents an export. Conversely, every one of us who visits another country has the same impact on the balance of payments as importing some of that stuff you buy at WalMart. Some of us have realized that services like architectural design or training and education can be exports. But basketball games?

Did they know they were exported?

Did they know they were exported?

Yes, they are exports, too, if somebody overseas is paying to see them. Every live event in the United States that has been licensed for foreign broadcast is an export. Similarly, the Malaysian Grand Prix that I watched this weekend was an import. The broadcast just moved in the opposite direction. And it isn’t just sports. Events such as the Oscars or an Andrea Bocceli concert can be imports or exports, depending on where it is and who is paying to air the broadcast.

Higginbotham did some digging at the Census Bureau and discovered that royalties and foreign licensing fees (for TV or radio) for U.S.-origin sports and entertainment events totaled $675 million in 2011. The big buyer was Japan, consuming $57 million in American live broadcasts that year. They were followed by France and the United Kingdom, $53 and $47 million respectively. But licensing fees were only part of the story. On top of that comes other services related to sports and performing arts, including all the back office work of production, management and promotion of those dancers, singers, athletes, actors and others you see on the screen. The United States earned another $893 million from such activities in 2011, possibly through sponsorships or direct payment for an event. Together, live sports and entertainment brought in nearly $1.6 billion in American exports. And we didn’t have to send anything overseas other than electrons. Not bad business.

Such exports are what are known in the business as “intangibles” because you can’t touch them or even easily imagine them, like you can with hard goods and many services. We’ll get into some other – and far larger – intangibles tomorrow.