International trade is not easy. If it were, more people would be doing it. As you navigate through the process, mistakes are bound to happen, but to avoid a few of the missteps, do some homework well before you get started. Below we discuss some areas where international traders experience the most turbulence. Focus on these trouble spots and you will put yourself on the path to what we all crave—a glitch-free international trade experience.
- Lack of knowledge on exchange rates.If you don’t know the exchange rates when trading internationally, you are exposed to potential currency fluctuations and are restricted when planning ahead or trying to get the best price. The work-around? Consult with your banker on how best to lock in your profit on a transaction and protect yourself from exposure to risk. If you are too busy, sell only in U.S. dollars or your major local currency. That way you hedge against the roller coaster ride of currency fluctuations.Additionally, know how to hedge against currency fluctuations.
- Lousy relationship with customs officials. Don’t underestimate the importance of a good relationship with customs officials, transportation folks and customs brokers. And never assume you know more than they do! You are responsible for compliance with all import and export laws, so get along with everyone and listen to what they have to say. Even if you hire a firm to carry out import-export procedures on your behalf, the buck still stops with you.
- Making a bribe. If you are conducting business in a foreign market, you must be familiar with and comply with the Foreign Corrupt Practices Act (FCPA).
- Being clueless about import restrictions or control on a product. Import restrictions comprise of quotas, import licensing requirements and so forth. Importing goods that violate quota restrictions or are unsafe could end up costing you money in fines and penalties, and that will erode your profits.
- Failure to conform to packaging, marking and language (localization) laws.What are the laws of the country you are entering? Consult with your transportation specialist and your customer and then compare notes. For example, do labels on your product have to be in the local language? How sturdy must the carton be? What markings need to be on the outside of the cartons to comply with the law? Is there any taboo to the number of products packed in box—eight chocolate bars versus 13, for instance? The point is to leave no stone unturned when it comes to honing in on the details of your product movement.
- Unfamiliarity of Incoterms and how they affect a sale. Incoterms are considered essential to use in contracts for the sale of goods internationally. For example, one of the common terms, CNF, which means cost and freight—you are responsible for paying the freight costs and collecting from your customer later. You must understand the costs and responsibilities that come with using a specific Incoterm. If you don’t, it can lead to underpayment to you, for instance, on an export sale or overpayment to your supplier on an import. It can also lead to customs problems, including documentation that might be prepared incorrectly. You can reduce the risk on the sale of goods internationally by negotiating effective trade terms.
- Bad record keeping. On all your international transactions, keep good records for as long as you keep your tax records—from how you declare a good (Harmonized code, for instance) to termination of a transaction whether by email or some other means, to the financing of a deal.
- Never verifying the reputation and legitimacy of a supplier or customer.Have you done your due diligence on who you are about to conduct business with? Verify prospective manufacturers. If you find them on a global sourcing site such as Global Sources or Alibaba check to see whether they have a website on their own. If not, why not? What does that tell you? Conduct a search on the Internet to see what pops up. On verifying customers, conduct an online search and see what bubbles up on search engines. Also contact governmental officials to see what they know about the customer, contact one of the International Trade Specialists based on your sector of activity to find out more on the customer. You might also reach out to your embassy to see what they know. Whether you are working with a supplier or customer, ask for references. Check them carefully. Ask the references for references on the supplier or customer you are about to do business with.