E-exporting

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E-exporting

You are operating a small or medium-sized business in Ontario. You have done the hard work to establish an online presence. You can even accept orders and ship your products to your customers.

One day you receive an order from somewhere outside of Canada. Now what? What do you need to know about exporting in order to meet your customers' needs and protect yourself? Or, perhaps you have heard about opportunities to sell your products in other countries and would like to know what to do. This booklet aims to answer these questions and more.

Exporting basics

There is no doubt that international business is a potentially lucrative area for many businesses. Consider the number of potential customers waiting to hear about your products around the world.

For most business owners, establishing yourself in a foreign market is complex and time-consuming. However, for the e-business savvy business person, no matter the size of the company, doing business internationally can be easy and relatively straightforward. While you won't have to worry about issues related to marketing and distributing your products in foreign markets, you will still have to deal with issues related to shipping, customs, electronic contracts and transactions.

Definitions

Exporting is the practice of sending or transporting goods or services to a foreign country for trade or sale.

E-exporting is the practice of receiving and processing orders online from customers located in foreign countries.

How you can use the internet to export

The Internet offers some advantages over traditional exporting approaches. Not only can you reach a large number of potential customers from around the globe without needing to establish a physical presence in other countries, but you can also:

• Customize your product or service offerings based on customer location – By offering special links on your website, you can localize and personalize your website for different markets (e.g. provide website information in the language and currency of the market you are serving).
• Offer electronic customer support – You can offer customer support either through a Frequently Asked Questions (FAQ) list available on your website, or through e-mail powered assistance, as opposed to operating a costly and time consuming 1-800 number.
• Clearly communicate the features and benefits of your products or services – Your website is the ideal vehicle to market your products or services to others. Using pictures, product descriptions, technical details, customer testimonials and even videos, you control what your customers see and learn about you and your products. Also, your website is a great platform to communicate information about how your products meet international standards and the policies (e.g., pricing, shipping, and return policies) your company embraces.
• Promote your company – Many customers are interested in not only product specifications, but also information about the company with which they will be doing business. The Internet allows you the opportunity to tell potential customers more about your company’s history, staff, location, partners, and so on.
• Facilitate communication with your customers– E-mail is a convenient way to communicate with your international customers. You can respond to questions instantly, notify your customers of their product shipment status, and send them your latest news or information on special offerings.

Steps to e-exporting

There are seven main steps when you are considering e-exporting.

1. Evaluate Your E-Export Potential
2. Develop an E-Export Plan
3. Modify Your Products for Foreign Markets
4. Research the Legal Issues Related to E-Exporting
5. Leverage Your Website to Sell Abroad
6. Ship Your Products
7. Get Paid

These steps are described in more detail in the pages that follow.

1. Evaluate your e-export potential

Before spending a great deal of time, effort and money on e-exporting, take some time to reflect on your current operations and product offerings. This assessment phase will help you avoid headaches later and will educate you on what you need to do to get ready to e-export.

What you should consider when evaluating your e-export potential

• To what extent is your business currently successful in its domestic operations?
  • Are you struggling to fill orders?
  • Does your product require a lot of servicing or follow-up assistance?
• Does your product have wide appeal in many markets and cultures?
  • Does your product respond to a uniquely Canadian need?
  • Will you have to modify your product to appeal to a wider customer base?
• Can your business withstand the financial strain of exporting?
  • How will you finance production and shipping costs until payment is received?
  • Is your company eligible for financial aid? If so, are you aware of the possible sources for financial aid for exporters in Ontario?
• Are you aware of and willing to work in the various cultural environments where you may be selling your product?
• Do you have the capacity to serve both your existing domestic customers and your new foreign clients?
• Would you have to make modifications to your product to comply with the various regulations in foreign markets (e.g. regarding labelling, contents)?
• Would the cost of transporting your product make competitive pricing a problem?

If your responses to the questions above appear manageable, move on to Step 2.

2. Develop an e-export plan

If you are being proactive and thinking about actively marketing your products in foreign markets, an export plan is a definite must. An export plan will help you:

• Identify potential markets to target your exports;
• Identify potential barriers to entry and other information that will help you plan your exporting endeavours;
• Identify distribution channels, partners and routes to market; and
• Create a realistic marketing budget (including, for example, commissioned market research, overseas travel, trade events, ensure marketing collateral, translation services and product customization).

Identifying potential customers abroad is a key step to developing an e-export plan. A good starting point is to research international market statistics on your sector to gain an understanding of the level of export of goods and services to various countries. Then, identify a few key markets for your products or services that demonstrate strong demand and potential for growth. In assessing the markets you will want to consider the domestic and international competition that exists and the various trends that may impact demand for your products or services.

At the same time, it is also important to realize that customers abroad are searching the Internet for the products they are interested in. Thus, developing an online presence through your website and business to business online e-commerce marketplaces such as Alibaba and TradeKey, is a good way of allowing customers to find you and gain an indication of which markets may offer the most potential for your business.

If you are simply responding to orders from customers located outside of Canada, your needs will be different, but you will still need an e-export plan. Even when you are being reactive to orders (rather than proactive), you should still identify shipping routes and costs of exporting including, for example, translation and product customization costs.

Tip: When considering exporting, don't move too quickly. Consider "test driving" your product in one or two foreign markets. This would help you identify unanticipated factors that may hinder product acceptance and also determine how viable exporting is for your business.

3. Modify your products for foreign markets

Before entering a foreign market, you need to be sure your products are suitable in their current form. You need to consider both the tastes and preferences in your foreign markets, as well as the specific foreign regulations that apply to your products. Note that these will vary by country, so you may have to limit the foreign markets where you sell your products.

Some examples of product characteristics you may have to change include:

• The name of the product (there are many stories of businesses that have launched products in foreign markets, only to discover that the product name has a negative connotation in the local language).
• Labelling (such as changing size measurements to the Metric or Imperial system, for example, or providing instructions in several languages).
• The product itself (for example, to meet local standards, to ensure compatibility with the local electrical power system).

Tip: Familiarize yourself with the guidelines of the International Organization for Standardization (ISO). This group issues documents that provide guidance on the selection and implementation of appropriate quality management programs for international operations.

4. Research the legal issues related to e-exporting

As with most business transactions, informing yourself about the laws and regulations that govern these transactions is critical. This booklet is not intended to provide legal advice. Therefore, you should consult a lawyer specializing in international law to make sure you are in compliance with the various domestic and foreign regulations. The website World Customs Organization will provide you with links to customs administration websites worldwide.

Tip: You need to know your product’s Harmonized System (HS) code in order to fill out your export declaration and to find out the duty rates that apply to your product by its country of destination. You can find your product’s HS code by searching on Export Canada (HS Code Search). For tariff information, you can go to bitd.

Some legal and regulatory issues you should consider when e-exporting

• Jurisdictions – Which nation’s laws are to be applied (i.e., who has jurisdiction) will affect how your contract is enforced and the rights of the parties involved.
• Intellectual property – A world trademark does not exist. You will need to file for a trademark in each country in which you plan to do business. The same holds true for other intellectual property such as patents.
• International trade agreements – Trade agreements between Canada and the country to which you wish to export may subject your products to lower tariffs. To qualify under any trade agreements, you will need to provide a Certificate of Origin proving the country of origin of your product and its components.
• Export controls – Is your product subject to export controls? Certain products require permits, certificates or inspections before they can be exported. Some software and computer products also fall under this category.
• Domestic exporting requirements – You will need an import/export account number to report export revenues to the Canada Revenue Agency.
• You must also report your exports by submitting, prior to exportation, an export declaration, and when applicable, any required permits, certificates, or licenses for controlled, prohibited, or regulated goods.

Visit the Canada Border Service Agency (CBSA) website for more information on exporting requirements and regulations.

Exporting information via the Internet

Many products that are traded or sold online never cross a physical border (e.g., in the cases where the product can be downloaded). Information is not subject to duties if provided via the Internet. Therefore, it does not require documentation or reporting. However, if you physically send your software product (e.g., on a CD or DVD) to your international customers, then it is subject to the same regulations as any other physical export.

5. Leverage your website to sell abroad

The Internet represents a critical sales tool for SMEs with limited resources. Consider the following tips for using the Internet that can help you with e-exporting.

6. Ship your products

Once you have made a sale, you need to get your products to your customer. The international shipping process can be complicated at best. Shipping can be broken down as follows:

• Packing – Since your products will change hands several times throughout the entire exporting process, you need to make sure it is adequately packed, so that it will arrive at the destination safe and undamaged.
• Labelling – Proper labelling ensures that your merchandise is handled properly and gets to where it is going in a timely manner.
• Documentation –The export process requires certain documents to accompany your shipment as it travels to its ultimate destination in a foreign country.
• Insurance – By insuring the merchandise you ship, you are protecting your investment against damage, loss, theft, and even delay.

To ease the burden of shipping products abroad, you can call upon the assistance of freight forwarders, customs brokers, and fulfillment houses as described in the chart that follows.

Getting help with shipping your product

Remember: While the services of freight forwarders, customs brokers and fulfillment houses can greatly assist you in exporting your products, keep in mind that you, the exporter, carry the burden of responsibility. You need to inform yourself accordingly.

7. Get paid

Many Canadian businesses that export their products abroad give credit terms to their buyers. The most common payment method is by open account, with a 30 to 90 day credit period. "Open account" means that you agree to ship the goods, or provide the services, before getting paid. The main advantage of this method is its simplicity and minimal paperwork. However, you are exposed to your buyer’s credit risks: if the buyer refuses to pay, for whatever reason, you may not get your money.

Of course, you could ask for other payment terms from your customer until you develop a relationship. These other terms include:

• Cash in advance – Your buyer pays you in full or provides a deposit before you ship the goods or provide the services. This is obviously the best option for you. However, buyers may refuse to purchase from you if you don't sell on open account.
• Letter of credit – In this case, your buyer goes to their bank and requests a letter of credit (also known as LC) for the amount of the transaction (usually a large sum of money). Your buyer’s bank (the issuing bank) will notify your bank that it has issued a LC for the stipulated amount as well as the various documents (such as an invoice, the bill of lading, and documents proving the shipment was insured) that must be presented before the issuing bank will release payment to your bank. If the LC is confirmed by your bank, this means that your bank will pay you even if the issuing bank does not release the payment. Also, LCs are typically irrevocable, meaning that they can't be cancelled or amended without your approval. The most secure type of LC is one that is both confirmed and irrevocable. LC is also known as documentary credit.
• Documentary collection – To use a documentary collection, you entrust the collection of payment to a remitting bank, usually your own. The remitting bank sends documents (as for LC, above) to a collecting bank (usually the importer’s bank), along with instructions for payment. The collecting bank accepts your buyer’s payment, in exchange for the documents, and sends it to the remitting bank, which then pays you. The use of collections will expose you to your buyer’s credit risks until you receive payment.

Arranging for online payment (before the goods are shipped) will help you to avoid having to collect payment after the goods have been shipped. Online payment options include third party credit card processing companies, online fund transfer services and prepaid credit services, all of which allow payments and money transfers to be made through the Internet. The services these companies offer are not available in all countries.

Keeping records

In Canada, you have to keep accurate books and records of your exporting activities for six years after the end of the calendar year in which you export the goods. You can keep these records on paper or electronically.

Risks of e-exporting

E-exporting is not without its risks. Below we highlight some key risks and some steps you can take to mitigate those risks.

Frequent exporting mistakes

This booklet highlighted some of the basic considerations involved in exporting via the Internet. In closing, we draw your attention to some of the most frequent exporting mistakes made by new and even experienced exporters. They are as follows:

• Not enough personnel or capacity to handle the inflow of additional orders
• Insufficient knowledge of the legal and regulatory issues related to exporting to other countries
• Selecting overseas representatives too quickly without thorough investigation
• Neglecting new export customers when their domestic market was booming
• Failing to treat international and domestic representatives on an equal basis
• Not modifying products to meet foreign regulations and local preferences
• Not printing sales, service and warranty messages in local languages

Future trends

As technology and services for online e-commerce advance, doing business internationally for small and medium-sized businesses will become even easier. One trend that simplifies e-commerce for businesses is order fulfillment services provided by companies such as Amazon and Shipwire. These companies fulfill client orders on behalf of your businesses by storing your inventory, receiving orders from clients, and packaging and shipping your products around the world. In some cases, these fulfillment houses may even offer to process payments and provide after-sales customer service support.

These new fulfillment services offer many benefits to small and medium-sized business owners in terms of saving time and reducing costs. With the fulfillment house handling client orders and organizing shipping, you have more time to devote to other aspects of your business. In addition, you can eliminate some of your personnel and inventory storage costs and benefit from the fulfillment house’s lower shipping rates.

However, there are some potential disadvantages to employing fulfillment companies that you need to be aware of. For example, you will have less control over your products and how they are handled. In addition, it may be more complicated dealing with client complaints or delivery status questions that are related to the fulfillment house. As well, you may need additional insurance if you are selling valuable products. Despite these drawbacks, fulfillment services are providing new opportunities to businesses to advance their e-exporting ventures. They are another tool for small and medium-sized businesses to consider in their e-exporting strategy.

Source: Fulfilment Houses: The Good, The Bad, The Ugly!

Related topics covered in other booklets

• E-commerce: purchasing and selling online
• The legal and privacy issues of doing e-business
• Internet auctions and virtual malls

This publication is part of an e-Business Toolkit which includes a series of booklets on advanced e-business topics and an introductory handbook How You Can Profit from E-Business. The entire Toolkit is available at ontario.ca/ebusiness.