Module Exportation

Province de Lige Higher degree School - Economic studies Academic year - 2010-2011
ModuleExportation_ETR_EN_r0 Carpentier F. 2010 Page 1 on 68

HAUTE ECOLE DE LA PROVINCE DE LIEGE
Economic studies

Higher education degree
Foreign Trade
2
nd
year

EXPORT

Keys for setting up
an export structure

F. CARPENTIER

Heaven is where the cooks are French, the mechanics are German, the policemen are English, the lovers are Italian,
and it is all organized by the Swiss.
Hell is where the policemen are German, the mechanics are French, the cooks are English, the lovers are Swiss, and it
is all organized by the Italians.
British newspaper - 1980's - Unidentified

Academic year 2010-2011
Economic studies
Avenue MONTESQUIEU, 6
B-4101 Jemeppe

Table of content
NUMBERS ABOUT EXPORT ............................................................................................................................ 3
GENERAL TREND OF BELGIAN EXPORT .................................................................................................................. 3
CONTEXT FOR EXPORT ...................................................................................................................................... 7
EXPORT ORIENTED STRUCTURE ........................................................................................................................... 7
SET UP OF AN EXPORT STRUCTURE ....................................................................................................................... 8
PRODUCTS FOR EXPORT ................................................................................................................................ 9
PRODUCT SELECTION ........................................................................................................................................ 9
APPROACH BY ATTRIBUTES ............................................................................................................................... 10
APPROACH BY MATRIX ANALYSIS ...................................................................................................................... 10
STANDARDISE VS ADAPT.................................................................................................................................. 17
PRODUCT, SERVICE OR BRAND REPRESENTATION, DISTRIBUTION CHANNELS ............................................. 17
11 C ........................................................................................................................................................... 18
DISTRIBUTION NETWORK ................................................................................................................................. 20
Internal/external sales representatives ................................................................................................ 20
Agents ................................................................................................................................................... 21
Distributors ........................................................................................................................................... 26
Joint venture, local company ................................................................................................................ 29
OEM/Integrators .................................................................................................................................. 32
Global analysis ...................................................................................................................................... 33
SEGMENTATION .......................................................................................................................................... 35
CROSS-SECTION NORMALIZATION ...................................................................................................................... 36
TERRITORIAL NORMALIZATION .......................................................................................................................... 40
Players and principle of normalization ................................................................................................. 42
Normalizing document ......................................................................................................................... 43
EXPORT MODEL FOR COMPANIES....................................................................................................................... 44
PRACTICAL STEPS ........................................................................................................................................... 44
6 TERRITORIAL PROFILES .................................................................................................................................. 46
LOGISTICS .................................................................................................................................................... 48
TRANSPORT MODE EVALUATION ....................................................................................................................... 49
PACKING ...................................................................................................................................................... 50
VOLUMETRIC WEIGHTING ................................................................................................................................ 51
WARSAW CONVENTION .................................................................................................................................. 52
SDR value is determined by a set of currencies .................................................................................... 53
COMMON TERMS USED IN SHIPMENT ................................................................................................................. 53
Freight consolidation ............................................................................................................................ 53
Dangerous goods declaration............................................................................................................... 53
Door to door ......................................................................................................................................... 54
EUR1 ..................................................................................................................................................... 55
Commercial invoices or pro forma ........................................................................................................ 57
Incoterms .............................................................................................................................................. 57
Trans-shipment ..................................................................................................................................... 57
RULES AND BARRIERS FOR EXPORT ............................................................................................................. 58
EXPORT LICENSE ............................................................................................................................................ 61
TEMPORARY IMPORTS, TRANSIT ........................................................................................................................ 61
USE OF NATIONAL AGREEMENTS ....................................................................................................................... 62
CUSTOM CODES CHANGES, SUB-ASSEMBLIES ....................................................................................................... 62
EXPORT PRICING .......................................................................................................................................... 63
FOREIGN CURRENCIES ..................................................................................................................................... 63
Internal techniques ............................................................................................................................... 63
External techniques .............................................................................................................................. 64
LOCAL LIST PRICES .......................................................................................................................................... 65
FINANCIAL RISK COVERAGE .............................................................................................................................. 66
CONCLUSIONS ............................................................................................................................................. 67

Numbers about Export
With less than 0.2% of the worldwide population and a market share of 3.4% of
export and 3% of Import, Belgium is ranking 10
th
on the hit parade of Foreign trade
for goods. Regarding Foreign trade for Services, it reaches 3.6% of market shares and
gets to the 8
th
place of the classification.
Belgian exports are about:
20% of consumer goods,
58% of intermediate goods (equipment and material 28%)
22% of chemical and related goods

Type Worldwide ranking
Diamonds and carpets 1
Vegetal fibers, Chocolate and fat (margarine) 2
Glass 3
Eggs, non alcoholic beverages 3
Cars 3
General trend of Belgian export
Between 1993 and 2004, the overall value of our export has increased by 129%
(3% in 2003-2004)
1
. During the same period, our imports increased by 134%, our
GDP (Gross Domestic Product) by 53% with a value of 284 GEURfor exports
amounting 246 G EUR.
IN 1993, Belgian export were amounting 58% of GDP, this increased up to 87%
in 2004. Belgium is highly dependent on its Foreign trade.
Our country occupies rank number 10 for export volume with 3.4% of market
shares. Import are ranking us on rank number 9. All proportions being equal, Belgium
is exporting twice more than Germany and ten times than Japan does. The importance
of this trade position can partially be explained by the central geographic position in
Eutope, a globally well qualified labour, multilingual and productive. The Belgian
Industrial sector can be compared to a complex machinery: it imports raw material
and semi)finished goods, which are exported when processed.
Regarding exports, we are just behind Canada, before Hong Kong, South Korea,
Mexico, Russia, Singapore and Spain.

1
Taking into account inflation of 21%, this increase is in fact 101%.
If Belgium is exporting goods about everywhere, almost half of it is going to 3
of our main Trade partners:
Germany (20%)
o Cars, Cycles, Pharmaceutical & Chemical products,
France (17%)
o Machines, Mechanical equipment, Mineral fuel, Cast Iron and Steel
However, export in direction of these countries has fewer increased than the
total of our export
2
.
Just after those 3, are:
England (9%)
o Cars, Cycles, Machines, Mechanical equipment, Pharmaceutical &
Chemical products,
USA (6.5%)
o Pharmaceutical products, Chemical organic products; diamonds
and gems, bullion, plated or layered metal

Exportation totale 100%
EURO Zone 65%
Other than EU 11%
Europe non EU 7%
Asia 9%
USA 5%
Table 1 - Shares by region, source diplomatic.be
The largest expansion of export in our Foreign trades are:
Poland
o Chemical products of our industry, household appliances, Cars,
Cycles, Machines, Mechanical equipment, Pharmaceutical &
Chemical products, Plastics
Ireland
o Consumer appliances, transport material, Chemical and
Pharmaceutical products, Food processing, Energy, other goods
(29%)
Turkey
o Raw material and chemical products, Crude oil and Natural gas,
machines and industrial equipment
next to these to a minor extent,
Canada,
India,
China,
Sweden,
Russia
Finland

2
Probably partially explained by a growth limitation of these countries in respect to
OECD average (2.7%)
Belgium has gained more market than the number it lost. Our export have
seriously decreased in:
Cuba,
Indonesia
Lybia
Burundi
It is interesting to see, that 3 countries out of this list have known issues on the
International politics scene. One can question whether this is or not linked with the
strengthening of Political relationship and interference of Foreign countries in Belgium
which is, THE centre of Europe and therefore should lead the way to ethic but also
could be seen by the said 3 countries as too close of adverse Foreign policies
3
.
Rank in
2004
25 most Importing
countries
Abs value in
2004
(MdsEUR)
% total in 2004
volution
+%
related to
2003
volution
% related
to 1993
Rank in
1993
1 Germany 48,67 19,75% 10,60% 122,00% 1
2 France 42,22 17,13% 8,30% 102,70% 2
3 The Netherlands 28,93 11,74% 9,30% 102,80% 3
4 United Kingdom 21,35 8,67% 3,90% 139,70% 4
5 United States of A. 16,06 6,52% 5,80% 242,50% 6
6 Italy 12,91 5,24% 6,90% 120,10% 5
7 Spain 9,6 3,90% 7,40% 216,30% 7
8 Luxemburg 4,84 1,97% 14,80% 90,20% 8
9 India 4,26 1,73% 10,70% 171,10% 11
10 Sweden 3,36 1,36% 6,50% 166,40% 12
11 Isral 2,9 1,18% 23,80% 45,20% 10
12 Japan 2,7 1,10% 22,60% 137,00% 14
13 Austria 2,69 1,09% 13,10% 135,30% 13
14 Switzerland 2,65 1,07% 0,40% 26,60% 9
15 Poland 2,49 1,01% 24,90% 431,50% 25
16 Turkey 2,47 1,00% 27,80% 338,10% 21
17 China 2,35 0,96% 3,60% 302,30% 20
18 Denmark 1,97 0,80% 9,00% 102,10% 15
19 Ireland 1,85 0,75% 22,70% 374,90% 28
20 Hong-kong 1,65 0,67% 5,00% 96,50% 17
21 Russia 1,65 0,67% 26,20% 239,70% 23
22 Geece 1,64 0,67% 13,90% 164,80% 19
23 Portugal 1,57 0,64% 9,50% 63,30% 16
24 Canada 1,48 0,60% 1,00% 299,30% 30
25 Finland 1,42 0,57% 13,70% 226,50% 27
Belgian Export total
246,41 100,00% 9,10% 128,60%
Table 2 - Export evolution 1993-2004 source "Institut des Comptes nationaux 2005"

3
However the Political risk is high and exacerbated by recent Nuclear moves, Iran is
not a place where our export have particularly decreased because we are not very present
there. By contrast Iran is highly exporting to us (Benelux)

Indicators 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Economy growth (a) 1,70% 3,40% 3,80% 0,80% 1,50% 1,00% 2,80% 2,20% 3,00% 2,60% 1,00%
Consumer private (b) 2,70% 2,10% 3,70% 1,10% 0,90% 0,90% 1,10% 1,50% 2,10% 2,00% 0,80%
Consumer public (c) 0,90% 3,30% 2,90% 2,40% 2,90% 2,10% 1,80% 0,40% 0,10% 2,30% 2,10%
Company investments 5,60% 2,00% 5,70% 3,60% -3,10% -2,40% 6,50% 5,20% 5,60% 8,50% 7,10%
Public administration investments -0,80% 19,40% 2,70% -11,60% 0,70% 0,90% 0,50% 15,50% -10,60% 3,40% 1,50%
Domestic demand 2,30% 2,90% 3,90% 0,10% 0,70% 0,90% 2,50% 2,90% 3,10% 2,90% 1,90%
Exports 6,00% 4,80% 8,30% 1,10% 1,20% 3,00% 6,10% 3,90% 2,70% 3,90% 2,10%
Imports 6,90% 4,20% 8,80% 0,30% 0,30% 3,00% 6,00% 4,90% 2,70% 4,40% 3,30%
Net Exports (d) -0,20% 0,30% 0,00% 0,50% 0,60% 0,10% 0,30% -0,50% 0,10% -0,30% -1,00%
GDP net growth (e) 1,90% 3,00% 2,60% 0,20% 1,70% 0,70% 2,10% 1,20% 2,50% 2,90% -1,60%
Inflation (e) (f) 0,90% 1,10% 2,50% 2,50% 1,60% 1,60% 2,10% 2,80% 1,80% 1,80% 4,50%

(a) GDP evolution fixed price in EUROS linked to 2006.
(b) Domestic household expenses growth in EUROS linked to 2006: expenses of household and non profit institutions
(c) Growth of Public administration expenses in EUROS linked to 2006
(d) Contrinution to GDP evolution.
(e) Uncorrected data with calendar incidences.
(f) Annual mean value.
(g) Estimations (but inflation).

Table 1 - Evolution of Indicators source "Institut des Comptes nationaux 2008"

Context for Export
A country is becoming an exporting country when one of the following
condition is met at least:
Internal resources are in excess compared to the domestic use and
necessity
Unique internal resources that is used/necessary to foreign countries
Services or goods which value is recognized and highly valued outside of
the territory
Has a transformation industry which can convert raw material into more
complex products
Limited internal resources in some fields which starts an exchange of
products by import,
Needs for foreign currencies to compensate the import needs.

Export will in return be negatively affected by:
Import barriers set up for political, economical or demographic reasons,
Downturn of the evolution of foreign currencies and the local economy of
the importing country,
Foreign competition,
Political and economical context of the exporting country,
Financing of Exportation

Necessary tools to help or allow export are:
Restriction of customs barriers,
Restriction of political and military conflicts,
Geographical position and transport infrastructure,
National politics,
Bank system and funds transfer.

Export oriented structure
An export company, must not only control its own market but also has to
know all elements here above described (see Context for Export) PRIOR to
starting to export.
In a way, all products can be exported but the ratio of spent energy on
potential revenue, must be lower than 1 on pain of eating all revenues and
margins raked in by the domestic business.

When working out the energy value, one has to take:
Distribution costs in a foreign country,
Transportation costs,
Modification and adaptation costs:
o Customization in order to adapt to the territory,
o Specific Certification and agreements to conform to the territory,
o Costs of a modified range of products compared to the volume,
Financial costs,
o exchanges rate costs, foreign currencies management costs,
o assurances and cover,
o bank and customs guarantees,
Tangible assets costs and management,

Without human and material resources, it is illusory to believe export can be
a success.
Set up of an export structure
The structure of an export company requires specific setting. Indeed, export
not only requires a rigorous administration but also external relays whose capacity
will very soon turn the steps into success or disaster.
The ideal export company will at least embed:
a sound and strong administrative department including finance and
banking consultancy,
a specific Sales (Commercial) department,
a logistics/shipping department

While smaller structure will need to outsource them because of costs, larger
structures will also require:
a legal and contract writing/survey department,
a technology watch and patent activity,

Products for export
The main difference between products sold on a domestic market and those
how are in destination of foreign markets, is that the latter will have to cover
needs of consumers/clients of various origins, which identification, approach, and
preliminary qualification are to be achieved for succeeding the export operations.
In most of the cases, the product will have to conform to local image in order to
be adopted which will be supported by marketing actions which will model aspects
(color change of packing for instance), naming (numbers instead of model name
for cars in China for instance), etc . All these modifications will induce extra
costs which will have to be weighted and if possible supported either by:
the domestic market in all or partly when export is essentially a strategic
move,
or the product itself when margins are sufficient.

We will speak in the following chapter about resources and potential of the
company: the product being in final the reason of the export decision.

Besides practical and technical details, export potential of a product,
essentially depends upon the image (has to be understood as usefulness, visibility,
existing appropriateness or to be created) on the territory.
The image is then a digest of:
product or trademark representation,
uses and necessity of the product,
availability of the product on the territory;
competitive economical criteria,
social or cultural values,
legal and tax data.
Regarding product export, two main case have to be considered: the
product is already existing on the market of export, or the product is created to be
exported as it has no existence on the market.
Not depending on that, purchase of a product is always linked with envy or
usage, whichever is the territory.
Product selection
For existing products, it is necessary to fit the product to be exported with
one or several criteria, on pain of not meeting consumer needs or not getting the
revenue from the market to the level of expectation.

Approach by attributes
When fitting a product to an export market, the attribute approach is a
good synthesis approach. Three main product attributes can be defined:
Physical
Outside appearance and presentation of the product including but
not limited to packaging, design,
o Service
Usage, ergonomics, support and customer service, guarantee,
o Symbolic
All elements linked with the culture, custom or religion. Some of
the physical attributes will exclusively be chosen because of the
particular symbol that they represent in the export region.
It is also important to note that not all product of a series, can be exported.
It is necessary to chose taking into account ration of energy to return of
profit, all resource and external constraints, the potential carrying out and
other factors.

Approach by Matrix analysis
Another interesting approach for SMEs is the matrix analysis. Among these,
defining segments, strategy and portfolio:
BCG
ADL
Mc Kinsey
Last but not least, Ansoff matrix which is the most appropriate to deal with
growth.
BCG (Boston Consulting Group) is based on the theory of the life cycle of
the product. It aims to positioning in strategic segments in relationship to
competition. This two dimension matrix, puts in relation market shares of a
company and growth rate potential.
The basic objectives of the BCG approach is to assign naturally limited
resources on an optimum way to the company, segments, products and activities
in order to acquire then confirm a competitive position.


Celebrity or Stars: bring a strong growth and a large market share. The
strategy to use is to massively fund in order to keep current position.
With progressive market saturation, stars will one day become milk
cows,
Milk cows: in a slowing down market, they have a relatively strong
market share. On a strategic point of view, their position need to be
held, cash needs to be generated to find other product of a same brand,
and in particular dilemma products,
Dilemma: in a fast growing market, are holding a small market share.
Veru strong competition on the business, it has to analyze why the
product is not capturing more shares. It might also decide to allocate
more finance to convert dilemma into stars,
Dead weight: products holding small market shares in a declining
market. The business has lots of difficulties to keep dead weight
products alive. The question is then whether it wouldn't be preferable to
remove them from the market


Pitfalls to avoid about this method are:

on a non domestic market, the set up of this matrix will call for a very
accurate market study in order to avoid subjective or fanciful values
which might lead to a wrong choice, collecting this type of information
on a new market is particularly difficult moreover for a new product,
a dead weight product on a domestic market may have a second life on
a new market, but this can only be determined by an objective
approach. A BCG matrix doesn't have to be started on domestic data,
When determining interesting products for foreign market using the BCG
matrix,, the weak point of this method lies in the fact that it states that
a product having small market shares will not be interested to market
while it is always the case when introducing a new product (non existing,
invention)

The ADL Matrix is analyzing the product portfolio taking into account assets
and attractions represented in the sector in which it evolves taking into account
life cycle.

This model leads to general decisions for a defined portfolio but this is easily
transferable to one product.

For instance, it can be deducted that instead of reorienting the business or the
portfolio, it might be decided to redefine the product or to select another
(abandon).


Regarding larger structures which can appoint consultants resources, Mc
Kinsey matrix allows to focus not on the share of the product (business), but adds
other values, economical, distribution channels, etc. . It's a BCG matrix with
more options and fine tuning possibilities but it is less easy to put in place by
SMEs.

Image, source Eur-Export

1 Strategic products bringing the business a dominating position
2 Tactical products in order to keep a position, a flag branding
2' Tactical product but business is not strong enough to sustain it
3 Loosing products but when multiple market can together produce revenue

The last matrix we'll speak about is ANSOFF's matrix. This matrix proposes
strategic choices to reach growth expectations when the product is selected.

Figure 1 - Ansoff Matrix
Ansoff's matrix is proposing four growth strategies:
By Product development
o New characteristics
o Different versions with different qualities
o New models
By Market development
o Increase of purchase level of actual clients
o Capture of competition's clients
o Find New Customers
By Market opening
o Geographical development of Markets
o Adaptation of products to new segments
o Development of new distribution routes
By Diversification
o New products on new markets
o Add products or services by
Own developments
Alliances and distributions
Strategic acquisitions

Figure 2 - Matrix roles

Standardise vs Adapt
When the product we want to export is already in a series active in a given
market, it might be beneficial to export it as it is as long as it fulfils detected
needs and local regulations. When choosing to standardise, the economical criteria
is the dominant factor as it helps avoiding:
management of different versions and variant of a product,
stock and inventory management of a multiplicity of products,
information and documentary management of new products

Adaptation may in return be the only answer mostly when local regulations
(tax, import, technical, rules,) are in force in the territory of export.
There are two different type of adaptations, adaptation by technical
conformation, and commercial adaptation. When performing the
marketing/commercial survey/study , these two aspects have to be entered soon
enough to allow the business understanding and preparing the necessary
resources to succeed.

The most important adaptation to define in time is the technical
conformation adaptation because it will be the main and only possibility to start
selling a product or service in the country while the commercial adaptation will
"only" be something helping or restricting the success of the sales in the said
market.
Product, Service or Brand representation, Distribution
channels
It is impossible to succeed to export without being visible. Either the
product has to be visible or the Company. When a product to introduce is already
existing under another shape or brand in the export market, the visibility of the
product is essentially depending upon its status in the market.
Businesses or trademarks present in a market will have built a typical local
image and the newcomers will benefit/inherit of the same image at least on the
early days of export.
It is however obvious that the success of a product in a market will depend
on the speed to reach the final customer. This in itself says that distribution
channels will have to be selected in function of the demanding structure (supplier,
manufacturer), the type of product/service (capital equipment, retail product, ..),
territory/country specificities and the energy available or agreed to spend
When speaking about export, Distribution is what make a product available:
outside of its usual space (Spatial transformation),
within a defined timeframe to be commercialised (Time
transformation)
in defined quantities and availabilities (Availability functions)
under the necessary shape (Appropriation function)
with the smallest loss as possible (Financial function)

11 C
An interesting approach for the selection of Ditribution channels has been
brought by MM. M.E Czinkota & I.A Ronkainen
4
. When selecting a channel to operate
the distribution of its products, a business will have to take care of 11 C points:
Customer characteristics, Culture, Competition, Company
objectives, Character of the market, Coverage needed/expected,
Control issues, Continuity provided, Communication effectiveness

Customer is the target to hit and the one who will do the sales target. His
characteristics have to be well defined in order to confirm the product to his needs
and expectations. The distribution channel needs to know the target, be accessible
to it (for instance on a geographic basis), and has to be identified by the target as
able to provide the product/service

Local culture is what will shape the characteristics or even the look of the
product to export. It is essential when speaking about 1
st
necessity or "heart"
(feeling) product

When the product has already entered the market with another player,
competition is already in place and has defined its own tracks. The customer is
used to a product, a supplier and has set all rules that are applicable. By knowing
the Competition in the place, the newcomer will save energy and costs. A lot of
errors can be avoided this way and by knowing in deep the distribution channel.

Setting the Company objectives will bring the basis for the right selection
of Distribution Channels. Depending on ambitions, means, products and
objectives, distribution will follow different routes. When Consolidation is foreseen,
the distribution channel will be selected accordingly.

As well as the local culture, character of the market will be shaping the
product or service and obviously the Distribution channel. Supply chains and
purchase channels will determine which distribution channel will be the most
appropriate. This is highly dependent on the infrastructure and equipment of the
country. A country with a dense net of roads and a good level of
equipment/revenue, will not be considered with the same methods as with
another less well equipped country.

With the definition of business objectives, is also the definition of expected
revenues that are related to the market coverage. Distribution channels may
have a strong impact on this aspect as it may induce big costs on the product and
therefore may impact profit or sales price. Most expensive solutions are not
always the best and they must be adapted to available margins, type of products,
and other elements as described in this chapter. The finance influence ratio
between Supplier and Distribution channel have to be properly set in order to stay
in line with objectives.

4
Michael R. Czinkota and Ikka A. Ronkainen (2003), 'An International Marketing Manifesto'


Assets to fix to build the sales channel on a foreign territory will certainly
depend on the territory but also on the chosen solution. Sometimes, it is
necessary to accept losses in the first fiscal years if it helps building a better long
term solution.

Control on operations or better not losing it, is a key factor for improving
the lifecycle of the product that is exported. If own forces are not sent on the
territory to survey operations, the distribution channel needs to be correctly
selected in order to guarantee that there will be limited drifts in the policy in
place. A Survey system will require to be in line with the resources available to the
company and that the expenses related are affordable and proportional to the
product value/revenue. This will impact the return value of the export

If we look for a seasonal or timely defined sales only
5
, duration is the main
criteria when selecting a network. Indeed the channel will have to show a stable
contact point in order not to frighten the target and give him the assurance he will be
able to find a regular and long lasting supply point for getting the product or service.
Continuity is the goal when selecting the distribution channel in this very case.
Because this is a long term work, securing the channel is essential because not only
the fact that a diverted channel will create a very strong competition but also that all
energy spent will be lost in vain.

To assure that energy will be efficiently spent, communication (quality,
quantity) must be privileged at all time. When due to local reasons, communication is
difficult (language barriers, contact infrastructure slow or weak, ) problems will
always be shown as related to that while in general problems are more important and
need to be tracked as soon as possible. Ignoring this will generate survey and
translation costs that might create a real barrier to product and service distribution.
It is an essential condition that when starting with a distribution structure, people in
contact are to be understood and need to understand each other. If for any reason,
they are removed or leave, they need to be replaced as soon as possible by an
equivalent solution available inside the structure and not outside by preference.

5
Opposing to a one shot/seasonal sales, is the regular sales which looks for a sales
that covers a recurring need or which sales is not covering an isolated or time defined
need.
Distribution network
When the product/service has been created or defined, the most important
will be to bring it to the target in an optimum condition for the target or the
business taking into account the product.

Following are the main distribution channels that we will discuss:
Internal sales representative,
Agents,
Distributors
Joint ventures

Internal/ external sales representatives
The company has its own sales forces specialised in the territory of exercise. Sales
representatives are located in the registered office which will generate large travel
expenses when operating abroad.
When the company is operating on different platforms
6
, it is necessary to
recruit personnel able to deal with the corresponding platforms. The territorial
segmentation is then the only answer for saving on personnel costs and in order
to group forces.

6
Platforms are a group of territories which have the same geographic, ethnic,
social, economic, or commercial characteristics, see the corresponding
Strength
Sales representatives are training by the company and therefore are the
best force able to represent the product
Information channel is straight and direct, return is interested because
the Sales representative is paid by the company,
Complete control over costs, and contact to customers

Strength
Travel expenses
Sales representative is a foreigner on the territory, it only has a
temporary presence,
Truncated or limited vision on the territory

Agents

Agents are the local representatives designated by the company. They are
recruited or found regarding their capacity to represent the Company and hit the
targets assigned in one or several sectors. They are given one product or an entire
series with the responsibly of the contact with the end user.
There are two main options. Invoicing is made to the agent:

The second part of the alternative is a healthier one in terms of managing
final pricing, that is invoicing to the end user:
Quotation
Gross Price
Purchase order
Gross Price
Company
Quotation
Gross Price
$ $
Payment
Gross Price
$
$
Commission
Customer
Area n
Agent
Sales representatives
Sales Rep
Area n
Sales Rep
Area n+1
Sales Rep
Area n+x
Invoice
Gross Price

This second option is preferable because:
final customer is identified and maybe followed afterward,
financial instruments and conditions,
exact control over final pricing because stated as raw market price or
raw price increased by a margin coverage,
the commission payment to the agent can be against payment of the
main invoice by the customer, the agent is responsible of the payment of
the customer to get his commission.
Inconvenient of this option are:
financial load is on the company and not on the agent,
agent will not be inclined to collect funds to the customer if the
commission level is lower that its own interests
7

The Agent must have a representative contract and a representing letter to
prove the legitimacy of the agent to the customers without having to show the
contract which embeds private contractual data. The second advantage of the
representation letter is that it may renew on a periodic basis the declaration of the
said representation to customers and it is also a good way to force parties to
consider the extent and situation of their relationship. This is a genuine and
enlisting sign which is highly appreciated mostly in Arabic and African countries.
Not considering a Business's strategy, whether the agent has or not to be
given one or multiple sector is a question where the potential business level has
an influence but also the available resources of the agent. When the agent is not
getting enough revenue to feed his resources, he will not be able to address
resources, will slowly divert from the product to go for more rewarding or funding
products or will simply cease his activity.
However, for products which may be sold to different sectors in a same
country, it will not be common to find a unique agent covering already all sectors
if they are many and varied.
When a new sector needs to be developed, it is necessary to measure which
impact on the base turnover will have the energy needed by the agent to diversify
and operate in a new sector. If the existing agent is having sufficient resources to
drive more than his nominal sector, this has to be the preferred route because it
reinforces the links and financial interests between parties. This may increase the
turnover and the importance of having the representation of the company.
If the resources are already fully addressed by the product or by other
cards of representation, the agent might be spending his energy to the new sector
while another existing player in the new sector will naturally be ready to develop
the market and add revenue to the company instead of replacing a portion of the
existing one.
If the sector-based approach hasn't been defined from start, it will be very
difficult to set it without breaking the initial contract signed with the agent which
is in general generating compensation expenses or call for a mutual agreement at
least

7
Depending on the size of business that is given in the hands of the agent, he will
carry other brands or products meaning that if the same customer is served also in these
other products interests in "chasing" customer's payment can be conflictual for his own
interests
For durability, it is also important to remember that the relative outside
financial value of the agent will depend on the number of representation he holds,
he will fight hard to keep products and sectors. It is then a question of
establishing a very strong and well defined contract in which fair exit doors are
possible.
For specific products and sectors (military, nuclear, food, ..) it might be
mandatory to nominate an agent in a country because he will act as the legal
representative for any concerns or liability with the product.
Card blockers

Card blockers are something very frequent in the export business and it has
to be observed very carefully. Two profiles are existing:
Because Assets of an agent are essentially the cards he holds, some agents
are collecting cards and this way to generate a fake value to their business. This
may be in view of selling their business or to proceed to other operations where
they need to prove a certain business size. They will then not do any sales or
promotion efforts because the main reason is not it.
Some agents have several business with different registered offices which
they use to separate competing products they ask to hold and that are not agreed
by individual contracts. This second profile deserves a closer look.
An agent playing on different companies, have 100% chances to answer
demands and requests on a market even if the required products are made by the
compatition.
Another very frequent reason of doing that is that the agent has then a
price and lead time lever to satisfy his needs and interests (always saying that it is
his customer's interest). The agent who holds companies Agent.A and Agent.B is
asking supplier.A who gives a price of 100 with a delivery time of 2 weeks. He
then goes to Supplier.B and negotiate prices while speaking about volume or
market shares until he gets what he wants. Sometimes Agent.A sells by
preference products from Supplier.A while customers have been sent by
Supplier.B to Agent.B who in fact transferred the request to Agent.A

There is rarely a sufficient septation in business to prevent from financial,
(price, reductions, arguments..) to be shared amongst different product lines. This
is the main reason for avoiding competition in same hands and moreover having
two businesses held by the same agent with competing products.
This situation is frequent when commission fees are higher from one
supplier to another or when links (shareholders, relationship, personal, ) are
existing between the Agent and the Supplier. If this fact is illegal according to
signed contracts, it is becoming legal when legal entities are different and the
relationship informal and private.

Visible criteria which are announcing this kind of situation are :
- A dominant position in a market where it is known that several products are
in competitions for years
- Volatile market where the loyalty to the trade name is not the use
- Introduction of a new product with a selling price which is not competitive,
this will require much more efforts than for an existing renown product
- A highly spread and diffused structure (which is frequent in Russia) with
companies outside of the country
- Sales results not in line with projections and expectations while competition
is already showing good results with the agents.B who has(unsuspected)
links with agents.A
- Financial links (or even a common structure) between competing suppliers
and the agent
In order to see whether we are in this case, only frequent visits are
efficient. It's also possible provided commercial efforts to reward customers to get
evidences of bad practices by collecting quotations, communications or other sales
that the agent would have done in prejudice of your product violating his contract.
Despite these potential risks, agent's representation remains the best way
to get a permanent local representation as this provides the best source of
knowledge of local uses and trends without being forced to set up its own
company.
Strengths:
- Agents are independent from the company, therefore are not a source of
permanent financial load. Their load depends on their sales (commission on
sales)
- Invoicing is done by the company to the final client in general and very
often the commission is due only after payment of these invoices.
- Local representation with a permanent contact point. Representation
expenses are covered by the commission on a temporary basis. One can
accept a starting package which would be independent from the sales but
this must be well framed and via precise objectives.
Weaknesses :
- Territory is seen only through the eyes of the agency
- Success is only depending on agent's interest, meaning that the less easy
to sell product are the less followed and proposed when the agent embeds
multiple lines of products
- The agent doesn't know at all the company, it is then essential to provide
him with frequent information as he cannot sell products he doesn't know
- Financial load is on the manufacturer whose only lever is the commission
but the level must be sufficient to stimulate the agent to collect the money
in case of bad debt.
- Frequent visits to motivate troops and support the agent, therefore there
will be a load to plan
Distributors
Distributors are similar to agents but are also importing the products that
they can store for distributing to the local target. They are the legal shield
between the end user and the producer. They are assuring the supply and they do
the invoicing to the target. Distributors invest into a minimum stock that he is
financing in part (consignment or fully depending on the contract). In general he
gets his goods to a preferred price and does not get a commission on sales.
Depending on the terms of his contract, he is then able to state the market price
and gets his own revenue from the difference. For that reason, distributor must
have a very particular profile, not only in his structure but also in his assets. He
must have a clean and sufficient supporting financial structure to get the load
related to the stock and inventory. (in this are also import duties).
8
He must have
a building able to store the inventory, tools for stock management, packing and
shipment if necessary, as well as the personnel able to take care of the product.
Purchase order
Nett Price
Company
Invoice
Nett Price
Shop
Area n
Shop
Area n+x
Distributor
Customer
Area n
Purchase order
Nett Price
Customer
Area n
Order
Nett Price
Invoice
Gross Price
$ $
Payment
Gross Price
Order
Gross Price
Order
Gross Price
Invoice
Gross Price
Invoice
Nett Price
Invoice
Nett Price

8
Some products will be covered under a temporary import, it will then be
necessary to have specific relationship with the local government/tax office in order to get
this temporary status.
This distribution channel is preferred when operating volume sales or when
the import of a product requires a local headquarter. The distributor must have a
contract defining his rights and duties and is also the legal representative for all
implications related to the product.
His inventory might be suggested or imposed in own acquisition or on
consignment. The major risk that exist with independent distributors is the
creation of a parallel market for instance for spare parts. The distributor must buy
his product from a unique supplier with a fixed price.
In the list of spares and spare parts, there are dedicated and undedicated
parts. The dedicated parts are those made and produced by the manufacturer,
these parts are specific to the product and their price cannot be compared to
another component existing outside of the supply chain. The dedicated parts or
own parts are those produced by the manufacturer and for which none alternative
are in existence. This gives the manufacturer two advantages and one
inconvenient.
Advantages :
Spares are a guaranteed revenue
Economic value doesn't exist because there is no point of references
9

Inconvenient :
The manufacturer has the obligation to keep going the manufacturing and
the stocking of the production tool in order to keep the components on
stock. This includes the human resources.
The undedicated parts are those generally not produced by the
manufacturer and used as such to be incorporated in the final product. These
components can be supplied by the local market. It must be noted that the
manufacturer states the selling price of these components including several
factors : minimum stock, cost of supplies, delays and deliveries, wearing and
necessity. On the other side, the final customer only sees the components and in
his quality/price ratio analysis, he will ignore the external factors. Therefore the
sales potential of these components, if they are known to the public, will be lower
or potential margins will be reduced.
Distributors are then tempted to get their spare parts outside of the official
manufacturer in order to get a better purchase price to match the local selling
price or get a sufficient margin from the product. For sure, contracts must state
that this is forbidden but we must be realistic that this exists in the distribution
circuit. The last point to mention on the economic value of the product is that it
depends on a market. For a market known for the quality of the local production,
for instance computers, it is unrealistic to think that you can sell a computer to
the price you have in a country where they are imported.

9
For incorporated or bought components, the manufacturer will modify them in
order that they won't too clearly be looking as existing ones.
The market price strategy has to be taken into consideration because it may
bring two direct potential consequences. If local prices is too high, this will kill the
sales potential, if the market price is too low, it will not generate margins where
and when it is possible
10
In order to limit this problem, the supplier/manufacturer
will have to decide different actions :
State that there is only one source of supply (the manufacturer)
Specify that price information from the market is necessary and this for the
two categories of components
Be protective to the information about the origin of his components by
removing any identification tags that wouldn't be his.
Survey the order level, mostly in all the spares in respect with the wearing
known in the local market or in foreign market
11

In the undedicated components, fix reasonable sales price, moreover when
the component can be easily compared to another supplier
When the purchase level is sufficient, get better discount from his own
supplier in order that the final price would be very close to a regular
customer price.
Strengths :
Distributors are independent therefore without permanent financial load to
the company
They are ( in principle) supposed to have a buffer stock to supply the
targets which transfers the financial load. > Bear in mind tax considerations
Local representation with a permanent contact point : this way they are
showing a larger image than real
For the auto promoted products (those which are named and asked by the
customer by their trade names), the identity of the distributor is not the key
point, it is the availability.
Weaknesses :
No straight access to the target.
The product must be known in the territory before its distributor, it must be
called by the target. It's the marketing of the product which will give the
success of it. This marketing is a load to the manufacturer.
The distributor doesn't provide an after sale service or a guarantee of
exchange. This structure has to be set and managed by an independent
structure which is fed in components by the distributor.
Because of the legal status of the distributor, the breaking of a contract is in
general more complex.
He doesn't know the compoany at all, his information must be frequent and
essential, he cannot propose or set up an inventory of products he wouldn't
know.

10
The price is based on the trinomial relationship cost/demand/competition. It is
necessary to build a margin reserve when it's possible because there are possibilities of
market saturation, uses but also competition.
11
There is no reason that the wear of some components would be higher in some
territories than in other but if there are, social, technical or environmental specificities
Joint venture, local company
We will only speak about reasons for choices and usual problems, but it's
very difficult to envisage all cases on a practical side because it really depends on
country and places where it is set.
The joint venture is an association made with the local partner for the
representation of a company or product in a country or a territory. A joint venture,
when it's not the only legal accepted solution, is a way to involve a local player
with the manufacturer, the supplier who wants to sell on a given country or
territory.
The principle is simple, a foreign company X is joining another company or
people to develop a local activity. The association is made ether through the
creation of a new legal entity which associates several existing entities or by the
venue of a new entity into an existing structure. The given shares are ether
determined by transfer of competences/business/portfolio or by a classic shares'
purchase.

It must be said that joint ventures are essentially promoted by newly
industrialized countries who want to bring in technologies and international
investments. It is very important not to forget that in most of the cases, the
ownership of the distribution tool is common and in case of an economical or
political instability, you are placed in a foreign territory with all that it involves in
terms of rights. It is very seldom that the foreign company holds the majority of
shares. It has to go through a local whose loyalty has to be proven because he will
be able at all time to pay on it's own as he owns the majority of shares. It is
essential to do the right choice of a partner and it is very frequent that this
partner has opposing interests without declaring them and this in order to get
more control over the market.
It is necessary for this type of network that engaged interests are limited in
all times and be ready to bad return if financial controls and relationship controls
are not in place and used. On a view points of finance and taxes, it is an extension
of the existing structure of a supplier and this will have an impact on the accounts
because there is an asset added to the structure. Still on the finance side, it is not
very seldom that the funds collected by Joint Ventures in their operations and
profit generated cannot be brought out of the country but only under certain
conditions. This may oblige companies to continue their investment in the country
with these funds which is not sometimes something that they want.
In case of chaos, funds and assets are generally frozen and locked in the
country. Therefore it is impossible to get them back to the mother company.
Finally, a very important impact on the international distribution of a
product Is the origin of the national branding or the origin of the product. This is
highly sensible in deluxe products
Some researchers
12
are showing that "end users can integrate the origin
information to perform their evaluation, using characteristics or images associated
to the country of origin
13
. Mostly when they are no other informative attribute.
This concerns the general evaluation of products or specific categories of products.
(It's the "Match" concept put forward by "Roth and Romeo, 1992). For example, it
may be seen that the label "Made in Germany" is increasing the evaluation of a
car but negatively the fact the evaluation of a robe compared with the label "Made
in Italy". Some countries can then have a very good reputation for some products
: Japan and Germany for cars, US for jeans, cigarettes, France for wines,
perfumes and deluxe products."

12
Maxime KOROMYSLOV - Univ de Nancy - Cahier de recherche 2007-01
13
Limage du pays peut elle-mme tre cre par des produits reprsentatifs, les
caractristiques
nationales, lhistoire avec le pass conomique ou politique du pays et ses traditions culturelles
(Nagashima, 1970)
The creation of a joint venture on top of allowing the removal of national
barriers, logistics or supply chains, will play on two other levels :
National integration for the promotion of the service attribute of the product
which is necessary for a product with a long life
The national reputation of the product in distribution or production which
will particularly in the developing countries be seen as essential as a local
product do not have the sufficient reputation.
Strength :
Owned tool meaning a better implication
If local production : better conformity and acceptance for the product as
well as costs
Local representation with a permanent local point which shows an important
visible surface
Additional asset
Weaknesses :
Direct financial load with profit and loss risks
When the manufacturer is not in majority, when the country stability is not
good, big risks regarding structure and funds distribution.
Decentralized management
New structure meaning advertisement to the target

OEM/ Integrators
This last distribution channel is more like a particular category of targets but
it is necessary and preferable to define it like a channel but like a customer. The
risk is that the potential margin of this type of channels is too low to go through
an agent. This channel may only exists for products which may be integrated to
larger assemblies or for products which naming or initial identity are changed in
order to satisfy a specific commercial strategy of an existing market to the other
product. It is very often the case that a market is getting two or more versions of
a same product. This allows to attack different segments or sectors by creating a
fake competition. In order to succeed that, it is necessary to distribute over two
distingue channel which are then in competition. One of the two products will be
modified mostly in its aspect or in some of its characteristics. The target has then
the choice between two identical versions but under a different trade name or
between two versions with different characteristics but also different trade names.
This principle is very often used to sell a product on a same market for two
different segments.
The OEM/Integrator channel is particularly well dedicated to this strategy.
The OEM/Integrator channel uses an existing business with one or multiple
products in general in the same sector as the received product. This structure
produces more less often only distribute products coming from a distribution card
to build his own market without spending money in technology or research and
development. It imports in his range a product that he has detected the needs in
his market. If the product is seasonal or opportunist, this allows them to free their
cash and to stay in a niche. If the product is complex, this allows to free resources
for development to focus on distribution or objectives. The OEM is a specific kind
of distributor because he is stocking a product during its transformation even if
this stocking can be of a short duration.
The creation of an OEM channel presupposes that an NDA
14
agreement is in
existence between parties because the level of information exchange is such that
it must allow the OEM to have a sufficient technical knowledge to operate alone in
its own product and in the support of the integrated components. Without an NDA,
it would be very easy for the OEM to decide shortly after, to let down the
manufacturer and start producing his own products based on the information he
has received.
On the producer side, the integrated OEM product must flow through a
specific production and management channel because this product will be on the
market under the responsibility of the one who has produced them.
But with specific agreement, the load must not be on the shoulder of the
official network who distributes the product under the original shape or name but
it must be clearly addressed to the local producer.
If a product delivered under a different form or name comes back to the
original manufacturer and not the OEM, that means that the information about the
true origin of the elements has passed to the target. It is absolutely necessary to
take measures to avoid it as it can completely destroy the strategy in place as well
as the relationship with the OEM.

14
Non Disclosure Agreement
It is necessary to understand that this leak of information might be
organized by either the target or the OEM, to generate a reason for a contract exit
with a breach of agreement. They might invoke disloyalty or unfair actions
because the product, sometimes sold to a higher price than the original product,
cannot be proposed anymore to the sales under the OEM form and price.
The appointment of an OEM will then be the consequence of a clear strategy
and displayed to the other channels in order to protect all interests and not only
the one who organized it.
Strength :
Production under another name than the original one
Creation of a new image which might also be valued
Additional volume production with stocking to the OEM and integrator
Weaknesses :
No direct promotion of the brand, echo representation
No direct access to target
If the resulting product has a bad reputation, the integrated product might
suffer
Absolutely no influence on a voluntary shut of the market.
Risks on intellectual property.
Global analysis
If agents and distributors are depending the cards they hold for their value,
they are also, when you choose them, the unique filter. They have full power over
the card and its success in a territory. It is highly advisable to have set control
doors and exit doors which have to be used when the balance is not true anymore
because the more the situation will last, the more difficult it will be to reset it.
Foot in the door policy
15

JV and OEM channels will be more related to the strategy and resources of
the company. They will need a supporting structure which will be much more
important. It is obvious that those two last ones are knowledge export on top of
product export. In this case, it is essential that the contractual conditions are well
set and can be enforced in case of problems which is not always the case in
countries where democratic liberties and freedom of markets are not existing.

15
FREEDMAN,J.L. 1 FRASER, S.C. (1966) Compliance without pressure : The foot in
the door technique
11C Power Matrix vs Distribution Channels
Int/Ext Rep Agent Distributor Joint Venture OEM/Integrator
Customer characteristics 3 8 8 6
16
8
Culture 4 8 8 8 7
Competition 5 6 5 5 7
Company objectives 8 6 6 8 3
Character of the Market 3 7 7 7 7
Costs 4
17
7 8 3 7
Capital required 4
18
7 7 3 7
Coverage needed 3
19
5
20
5 5 5
Control issues 9 4 4 7 3
21

Continuity provided 9 5 5 8
22
3
23

Communication effectiveness 9 6
24
5 7 3
25

Where 1 Poor 5 Average 10 Best solution

16
Depends on the initial existence of the product on the market and not of the origin of the company
17
The ratio cost/operation is less good than for an operation that you only pay based on the result like to the agent for instance
18
No investment but fixed social costs and infrastructure support
19
Here again, the ration efficiency is the target but by multiplying the numbers you can get a larger coverage
20
Depends on the agent's structure which is here considered as operating from a single place in a large country
21
Only control over the quality of products and not on results
22
Control only over the life time because owner but this in return does not guarantee the continuity
23
Always subject to a one side change of strategy
24
To be compared with a communication with internal sales rep
25
Not useful if there is a distinction between the original product and the OEM product
By analyzing potential given by each channel but this time but this times by
advantages and inconvenient, this gives the following table

Type Advantage Inconvenient
Internal sales rep Fixed costs and directs
Has to learn the market,
always a foreigner in transit
Agent
Fixed market price, knows the
identity of the target
Sales is on the back of the
supplier
Distributor Stock and payments Final end user unknown
OEM/Integrators
Volume and new markets
Limited export problems
No advertisement for the
brand
Low prices
Joint Ventures
Own structure for limited costs
(depending on territories)
Local involvement
Shared ownership
Foreigner

Segmentation
Whether it is on a domestic market or an export market, it is necessary to
know the segmentation of its market and to normalized to the best differences in
order to use the energy to the best to get the targets where they are located with
the appropriate approach. In order to do so, one must normalized two important
aspects of the distribution. Two aspects will be seen hereafter :
- Cross-section normalization
- Territorial normalization
The cross-section normalization tries for a given product to gather different
industrial service or activities, and to name them as sectors.
The territorial normalization tries to link different territories together and to
define common characteristics which are allowing a more rational and economical
approach.

Cross-section normalization
It's the Scottish economist Colin Clark who has the ide to define three main
economical sectors depending on the nature of the industry
- Primary sector which involves collection and exploitation of natural
resources (material, energy, and some food);
- Secondary sector which concerns manufacturing and transformation
industries
- Third sector which groups service industries (essentially non material :
consulting, insurances, training, research, administration,)
This classification is not rigid. For example : agriculture was classified as a
secondary sector (the cultivator transforms seeds into food, for example) by
opposition to hunting and picking.
Cross-section normalization that we want to speak about has nothing to see
with that classification because to be useful to us, it cannot be a classification
which uses all products in a bulk. The information that a company is belonging to
a secondary sector, for instance a casting industry, is not giving us a distribution
of the target it serves which can be for instance the automotive industry,
shipyards or even furniture.
When exporting, we have insisted on the benefits of a serious market study
but to be efficient it needs to take into account the sectors applicable to the
product. The definition of these sectors and their existence is therefore essential
not only in generic terms but in very precise terms oriented towards the product,
his sector application without forgetting the sectors to be developed. Market study
devoted to export will concentrate essentially on the precise identification of
sectors then on the definition of market shares expected in regards of these
sectors.
When selecting distribution channels this segmentation will define whether
it is necessary to recruit one or several actors to cover all the sectors discovered.
For the company needs, sectors will be defined in function of the application
targets for the use of a specific product. A sector will then be characterized by the
criteria which are specific to it and which allows a similar treatment when speaking
about the minimum regulatory or commercial approach.
Categorizing will indeed bring a certain level of normalizing which will be
used to delimit and define the field of activity of the distribution channels. To
succeed this, one must fix a similarity of latitude which once passed will generate
a new category. This work will also allow to focus resources on a more efficient
way and to decide what deserves or what can be exported in the defined
territories.

Taking into example a simple product like leather : you can find different
sector based categories :
- Furniture
- Clothing
- Automotive and aeronautics' equipment
- Leisure
- Industry, transmission
These different sectors can be supplied at an end user level or intermediate
distribution channels will however be different as well as potential in regards with
the export destination.
When potential activities have been determined for the product, it is
necessary to evaluate the relative potential on the territory. This evaluation can be
done by a specialized independent company but these have their own sector
based analysis. It is therefore necessary to adapt his own vision to the closest to
the segments otherwise results will not be close to the expectations.
The other option is to use local companies already holding the card related
to a product but it is necessary to check that they are representing all sectors. The
local economic representative can be used as he is operating through all sectors
and has a global vision. The last potential can be seen in the electronic
information that are on line and visible through a connection but it is highly
recommended that these information must be crossed checked mostly when they
concern developing countries because these are mostly wishes than realities.
Statistics than can be viewed throughout these websites are unoften
expressed as an application and are generally to general to be exploited without
additional sources.

NB : This questionnaire has been filled by structures (agents, distributors, main customers) in place in order to measure
their local vision about the sectors that are in existence in their territory. This view is always subjective and has to be put
together with other objective facts.

The real work of analysis takes into account independent market analysis,
the vision brought back by visits, economical surveys and measures the potential
drift. If the distortion is real, this proves that the solution that has been used for
the evaluation :
- Focused on other sectors
- Linked to a funding custom based in a sector that it holds as opposed to
others
- See as marginal or non existant some sectors
- Do not hold human resources or ambition that are necessary to develop
sector based approaches.
- Disconnected from economical reality of the product it represents.
But the sector based analysis is not only used for defining the export
potential, it can also be a very good way to develop an existing market and
increase the potential revenue in the territory. The strong but also the weak points
of local players (agents or distributors) is the fact that is very often active in a
precise sector where is focus when ignoring the parallel sector. This is often linked
to the available resources. The discovery of a new sector becomes then a
potential, some opportunities that it might be better to propose to existing
channel before stepping into new recruitment. This gives to the local solution
already in place the possibility to increase his revenue if it can be done (resources
and accesses).
The exploitation of crossed based analysis is afterwards converted into
development potential of market shares which is stating precise objectives that
can be measured.
Country A market volume for all sectors : 1000
Own shares : 75 %
Competition 1 : 35 %
Competition 2 : 20 %
Unknown : 30 %
Available shares : 0.15 x 300 = 45
Total shares Competition Own shares
Accessible outside of
competition
Sector 1 10 20 40 40
Sector 2 30 0 30 210
Sector 3 50 45 30 100
Sector 4 10 30 0 70
With a simplified vision, but this course is not aiming to focus on market
share calculation, it is visible that if based on unknown shares without getting
competition shares, the real potential of a market can be more important but
moreover better defined if one take into account the market shares by sector. One
this exercise is completed it is also possible to know what resources to recruit and
their type to succeed.

Performance and analysis of the competition by sector based approach can
produce interesting information. For example, products where competition is weak
can be considered as :
- Unknown
o There is a potential niche
- Non rewording,
o It is necessary to evaluate the efforts/profit potential
- Non accessible
o It is necessary to check whether the competition distribution channel
and the global strategy might be the reason for this lack of
access/interest
Territorial normalization
Territorial normalization is targeting the similarities between different
countries to gather than into a more restrictive list of territories which afterward
possible to approach on a more economical and rational approach. Including the
non sovereign countries and non UN countries, there was in 2003, 223 countries
among which 192 were recognized by the international community. The number of
states and countries has always fluctuated in centuries because of colonies,
independence declarations, etc. (68 new states in 20 years from 1956 to 1975
26
).
With the access to the global economy, thank to a globalization, countries are
created and gets access to independence. The first criteria that create a needs for
independence is economical and cultural auto-determination.
The geographical distribution is indeed a function of continents
1955 1975 2000
Africa 5 48 53
America 22 29 35
Asia 27 39 47
Europe 32 33 44
Oceana 2 7 14
Total 88 156 193

Most of the countries are named after two names :the short form and the
long form. For instance Belgium is the short form of the long form which is
Kingdom of Belgium. This also indicates the structure of its political system
27
.
For standardization reasons only one name will be used on the international
base but this is not sufficient to rationalize data in a way that they can be
understood from all and be manipulated by countries without modification. There
is in general a consensus adopted when economical data are discussed in order to
put local information at hands on a cross-national basis.

26
Source Wikipedia
27
China and People's Republic of China

Figure 3 - The world in 2005

In order to handle economic data, it is not necessary to take into account
political values like membership of UN or EC. At the most these data will be
informative regarding the general policy to use and a careful rule to use in the
economic exchanges but this will not be the first criteria for general classification
of processing or approach.
With the venue of computers in all sectors, it has been necessary to use
precise and fixed country naming.
Players and principle of normalization
International normalizations are dealt by ISO international standard
organization founded just after the second world war in 1946. ISO
28
is the
resulting organization coming from the fusion of ISA (International Standard
Association) in 1926 and UNSCC (United Nation Coordination Committee in 1944).
There were 65 delegates coming from 25 countries and the headquarters was
located in Geneva, Switzerland because of the origins of the association and his
secretary Mr. KUERT coming from SNV. ISO is nowadays an association of 163
countries that are affiliated through their national institute for standardization.
Works that are related to European standards are given to the ECN
(European Committee of Normalization) which signed in 1991 the Vienna
agreement which is a cooperation agreement with ISO.
The ECN is now number one member state also represented through their
national institute for normalization.
The first goal of normalization is to facilitate trade, exchanges and
business. The aim is to decrease or remove all export barriers to increase the well
being of population and to develop economies of concerned countries.
The guideline is that when they exist, national standard are the basis of a
discussion brought to the normalization committee who write a resulting document
which will then be adopted by all member states as a replacement of existing
national documents. For subjects which were not previously supported by a
document, member states are deciding whether yes or not there is a need for
creating committees for dealing with the writing of the said documents.
A very important point to mention is that normalization is not at reach of
companies but through the filter of their national institute. The absence of
contribution of industries will not prevent committees from progressing. This
means that these standardization committees will not be able to defend regional
or national positions when they are not informed about the realities of the field
and that companies are not interested to participate into the writing of said
documents.

28
In Greek, this means equal/balanced which is indeed perfect for an association
aiming to define rules of free circulation of goods and people.
Normalizing document

The standard which deals with definition of country names is ISO 3166-1
Alpha 2 or Alpha 3
29
. It's the most appropriate document to start with for a
territorial definition because it is simple, complete and sufficient. It can be
downloaded as a database access, text file or html to be integrated in any kind of
specialized applications.
I soPays_ Fr IsoCode2 isoCode3 Numrique
AFGHANISTAN AF AFG 4
AFRIQUE DU SUD ZA ZAF 710
LAND. LES AX ALA 248
ALBANIE AL ALB 8
ALGRIE DZ DZA 12
ALLEMAGNE DE DEU 276
ANDORRE AD AND 20
ANGOLA AO AGO 24
ANGUILLA AI AIA 660
ANTARCTIQUE AQ ATA 10
ANTIGUA-ET-BARBUDA AG ATG 28
ANTILLES NERLANDAISES AN ANT 530
ARABIE SAOUDITE SA SAU 682
ARGENTINE AR ARG 32
ARMNIE AM ARM 51
ARUBA AW ABW 533
AUSTRALIE AU AUS 36
AUTRICHE AT AUT 40
AZERBADJAN AZ AZE 31
BAHAMAS BS BHS 44
BAHREN BH BHR 48
BANGLADESH BD BGD 50
BARBADE BB BRB 52
BLARUS BY BLR 112
BELGIQUE BE BEL 56
BELIZE BZ BLZ 84
BNIN BJ BEN 204
BERMUDES BM BMU 60
BHOUTAN BT BTN 64
BOLIVIE BO BOL 68
BOSNIE-HERZGOVINE BA BIH 70
BOTSWANA BW BWA 72
BRSIL BR BRA 76

There is also a system called UN/LOCODE developed by UN but it deals with
geographic position of ports, airports, train stations, roads, post office, borders
and other places used in trade and transport which is not something we deal with.
ISO 3166 has a section 2, ISO 3166-2:2007, some codes for country
representations with their subdivisions.

29
2 or 3 characters respectively
Export model for companies or
According the economical and strategic model decided by the company, the
territorial segmentation can be referred to a certain model
30
.
- Ethnic based
o The culture of the country of origin is the central reference of the
system and everything is compared in regards to the domestic
market. The domestic market has the priority on the export market
who will only get what's left in the production that has not been sold
to the domestic market.
- Poly-centered
o All markets are considered as equivalent. Each country is considered
individually with a very high level of adaptation or confirmation.
- Region or geo-based
o Markets are pooled in regions, continents or economic pools to be
attacked on a global basis in order to optimize a competitive position.
Regarding adaptation of products opposed to the poly-centered
model, this orientation will ask for an optimum standardization of
product.
On a marketing point of view, different strategies can be used
31
:
- A global marketing when the company is active on a worldwide market
- An export marketing when operations are done through a border
- Or a multi domestic marketing for export done only to few countries.
Practical steps
When the list of countries has been identified and their abbreviation
standardized, it is possible to start with a territorial classification which will be
specific to the company and to the resources that it uses. Normalization or
territorial classification must take into account criteria that can be evaluated from
the outside with objective values. Potential criteria are :
- Economical standards
o Bank standards
o Currencies
- Social, cultural, historical parameters
o Religions
o Origins and progression
o Social system in place
o Languages
- Political system
o Origin and potential evolution
- Geography
o Continent
o Socio-economic pooling
- Own resources

30
According to Perlmutter, 1966
31
According to Keegan & Leersnyder
Economical standards are interesting to take into account for the money
and currency transactions but are ignoring the aspect related to the product and
the target. Whether it is in Euros or Dollars, the product will be sold. To the most,
the revenue and the price fixing will need more or less attention.
Political system is not very important criteria but when interfering with cross
borders transactions.
Geographical classification is corresponding to an economical reality in
terms of shipment and export but is ignoring cultural aspects but are sometimes
very important for some products.
Own resources are sometimes defining the type of market that is targeted.
For example, a country where the essential of the industry is mining will be in
need of crushers and all type of detectors but this data is very specific and almost
sectorial meaning it has very few value or generic classification which is aiming to
ease the export to different countries using the same work mode and approach.
Social, historical and cultural parameters are those directly influencing
product definition and the way to sell it to the target. They are essential and must
with the geographical classification be the base of the territorial definition. When
gathering countries based on those two major criteria, it is possible to do a global
communication and a standard approach which will be common to majority of the
countries included. Geographical proximity seen alone is only an economical
criteria even if, on the cultural side, there is a link between belonging to a
continent and a social and a cultural element.

Criteria Effect
Economical model Funds movements
Geographical model Development and occupation market strategy
Social and cultural
model
Product and relationship modification and adaptation to the
local reality

6 territorial profiles
Depending on the aspect we will favor, geographical or socio-cultural (which
includes political aspects), classification will be different.
As mentioned above, the main subdivisions are also closed to a
geographical segmentation, for instance :
- Europe
- America
- Asia
- Middle and far east
- Africa
However, these subdivisions are not showing differences in culture that are
presents in each country that are included in each category. South Africa cannot
be considered on the same foot as North Africa when speaking about culture. The
first one will be closer to a Nordic mentality (origin of the population) while the
second one will be closer to the mentality of south Europe. It is clear that there is
a contamination which generally depends on :
- Geographic proximity
- Ethnic proximity as well as migration
- Importance of trade exchanges
The first classification will then have to be completed by additional
subdivision which will take into account this contamination particularities in order
to re-classify countries independently from their geographic positions.
- Europe
o North, East
o Central and South
- America
o North
o Central and South
- Asia
o Central
o South/East
- Middle and far east
- Africa
o North
o Central

Taking a well defined example like Europe, the territorial classification might
look like the following one :
- Europe
o North
DK, FI, NL, SK, UK
o South
SP, PO, IT, GR
o East
PL, SL, LT, DE
o Central
BE, FR, (CH), TR
Speaking about America when taking into account the cultural and historical
reality of these countries, it could be possible to bring north America/Canada to
the profile north Europe and Central and south America to the profile Europe
South.
- America
o North
US, CA
o Central and South
BR, UY, PA,
Here again, profiles America center and south could be gathered in the
same group, more than the profiles north and center who are using different
exchange and communication standards. If we use as a principle criteria, cultural
and social data, the territorial classification of countries will give a consistent
group for a rational approach of countries through a minimum number of different
entries.
- Latin and Central Europe : ex : Italy, France, Spain
o Common history
o Proximity relationship
o Parallel economical development
o Existing free trade
- North Europe : ex : Norway, Russia, Germany, Poland
o Common history but conflicting
o Convention relationship
o Import of essential technical products
o Introverted countries looking for opening by necessity
- Asia
o Totally different culture than Europe, very traditional rooting
o Interested relationship
o Political influence to all levels
o Economical factors behing technical advantages
o Currency and language barriers

- Middle and Far East
o Block requests and middle man always present
o Commercial relationship with a very high intimacy tendency
o Political and regime influence always present
o In search of training and access to information
- USA, Canada
o Free trade principle
o Commercial relationship
o Functionality behind technical characteristics
o Immediate satisfaction of desire
- Latin America and Hispanic countries
o Close to Latin and Central Europe
o Intimacy relationship
o Sectors are limited to the local development
o Political influence to all levels
The continent terminology after this example is now looking like less
consistent when countries are pooled by social and cultural approach instead of
proximity or geographical circles.
Each of the above territorial profiles will have their own negotiation scale,
timing and relationship uses that have to be taken into account to succeed on the
said territories. When a territorial classification of countries is not adapted to a
product that will be exported, this will always provoked energy losses and more
than that, consequences when analyzing global trends to the light of a policy in
place.
In companies belonging to a group, the territorial classification must be
harmonized when there are sales consolidation otherwise, extracted data will have
no sense.
Logistics
We have insisted on the fact that the basis of the export business is to give
a product (new) to a target located outside the domestic territory. This in itself
says that the logistic section must be in place. This logistic section will be more
difficult when dealing with distant structure on which it is very difficult to get a
good monitoring like shipment. On this very aspect, the life of a product can be
decided, it is then necessary to put this aspect as number one priority. This is the
very reason for having at least a performing shipment logistic department in the
companies who are exporting much.
The selection of logistics systems will depend on geographical particularities
of the source and the destination as well as the nature of the exported goods. It is
also possible that if some specific transportation media are not existing, this would
prevent a product to be exported or will tremendously multiply the local supply
price.

Costs and consequences of a bad shipment are very often exceeding the
value of transported goods. They can have an impact on the image of the product,
can occur direct but also indirect costs by for example reducing the lifetime of a
product and be very negative to the export policy of a company.
Transportation methods are then selected when taking into account :
- Matching to transported goods
- Availability
- Monitoring, control and security
- Costs
The cost is the last criteria if monitoring, control and security aspects
cannot be guaranteed and that the value of the potential damage might exceed
the investment by the selection of a transport solution. A new customer who is
evaluating a new product to integrate it in his own production will be delivered
using the "Gold" solution which will guarantee that these steps will be fail free. No
matter the losses on this transport as long as the delivery is perfect.

Transport mode evaluation
Without surprise, classical mode of transport are :
- Road
- Train
- Aircraft
- Ships
- Piping
Each mode will have advantages and drawbacks. When determining the
mode of transport, it is useful to use a decision matrix which will have to make the
decision more objective and to use the most appropriate network to reach the
final destination.

+ -
Roads
Flexibility, door to door delivery, price efficient
because of competition, speed
Transshipment, limited
monitoring environment
Train Reduced handling, soft transport, security
Slow, point to point,
transshipment
Aircraft Reduced handling, speed, security Point to point, costs
Ships Cost, volumes and loads
Slow, point to point,
transshipment,
environment
Piping Cost, volumes, door to door
Point to point, fixed
infrastructure
Every time that a product has to be handled while travelling, this product will be
at risk of being damaged or stolen/lost. When possible, the transport mode will
have to select the most direct way with the least handling as possible. Which in
case of problems will limit the number of players on which to complain and will
increase the efficiency of a claim.

Packing
As opposed to what is generally believed, the heaviest, the more robust
looking or the most expensive packing is not always the best one. The right
packing is the one which is really adapted to the type of goods it is protecting and
which is essentially capable of supporting normal stress of the travel foreseen for
this good. It has to offer a sufficient empty volume that will protect the goods
while travelling and being handled adequately. Depending on the cases, it is also
necessary to think that the packing will be used on the way back and that the
robustness will be sufficient with a non destructive opening to guarantee that it
can be re-used.
It is the same uses for packing of goods who are travelling by roads, air or
water which are submitted to specific risks and damages : packing have to be
adapted to these different mode of transport. Depending on the import countries,
packing are not allowing certain material and will ask for specific certificates like
fumigation for example. Sea packing are particularly concerned by these
directives. For example, sea packing must not only sustain pressure, heat,
moisture in the hold of ships and in warehouses but also when being handled by
cranes in sea ports.
This sea packing must also take into account the fact that the good because
of its value can be much more exposed to being stolen during the shipment or in
the warehouses or because of the nature, load or volume, it can be stored outside
in a very bad weather conditions. When goods are in destination of an enclosed
country, with a difficult access, these packing must be specifically designed.
The most frequent sources of losses and damages are bad conditioning and
sufficient packing or a defective marking, a bad conditioning or an insufficient
packing will increase the risk of damages, dispersion, breaking or even stealing of
the content. An confused or inadequate marking, insufficient or non permanent
will creates shipments errors, package identification confusions and as a
consequence, losses.

Province de Lige Higher degree
ModuleExportation_ETR_EN_r0
Volumetric weighting
Volumetric weight is weight/volume ration which allows to calculate the
density of a parcel. In other words, determine which volume t
considering its format. When transporting goods, for instance in aircraft, this
volume notion is essential because the space is very expensive.
The cause is simple because a parcel must have empty spaces and sufficient
number and sufficient sizes to be used as energy absorbers. Very often,
containers are full in volume before the maximum load is reached. This results in
a money loss for transport companies who have then introduced this volumetric
weight notion. The second reason for that
resistance which imposes an equal distribution of loads.
The volumetric weight is calculated and compared with the real weight of
the parcel. The one that will be the most important will be used in the calculation
of the cost of the shipment. Express carriers will multiply the volume of the parcel
by this weight/volume ratio to get the volumetric weight, if this one is higher than
the real weight, then they will use the volumetric weight value as the invoicing
value, otherwise, they will use the weight of the parcel.

Volumetric weight = LxlxhxRatio m
Aircraft 167 to 250 EUR/m
Transportation costs are based on the real weight or volumetric weight,
whichever the biggest according to IATA
Volumetric weight is calculated as following :
L x I x H (in cm) / 6000 (basis on 166 kg/m)

IATA volumetric weight factor
- International :
- Domestic :
Example : A 25 kg parcel which dimensions are 60 x 40 x 80 will have a
corresponding invoiced weight of
Regarding insurance, by default, Warsaw convention which applies and will
compensate by 20 USD/kg.

32
The Air Transport Association (
industry. Its members comprise all major passenger and cargo airlines
33
according to current IATA
er degree School - Economic studies Academic year
Carpentier F. 2010 Page

density of a parcel. In other words, determine which volume the parcel will use
volume notion is essential because the space is very expensive.
ent sizes to be used as energy absorbers. Very often,
weight notion. The second reason for that is also a notion related to material
resistance which imposes an equal distribution of loads.
he cost of the shipment. Express carriers will multiply the volume of the parcel
herwise, they will use the weight of the parcel.
Volumetric weight = LxlxhxRatio m
Aircraft 167 to 250 EUR/m
whichever the biggest according to IATA
32
rules.
culated as following :
L x I x H (in cm) / 6000 (basis on 166 kg/m)
33

IATA volumetric weight factor are :
6000 cm/kg
7000 cm/kg
ight of
60x40x80/6000 = 32 kg


The Air Transport Association (IATA) represents, leads and serves the airline
industry. Its members comprise all major passenger and cargo airlines
IATA tariffs
Academic year - 2010-2011
Page 51 on 68
he parcel will use
ent sizes to be used as energy absorbers. Very often,
is also a notion related to material
he cost of the shipment. Express carriers will multiply the volume of the parcel
) represents, leads and serves the airline
Warsaw convention
Warsaw convention states modalities of air transport including the air
transport letter and the liability limits of the carrier. Excluding a specific insurance
that has to be taken to the carrier or to a specialized broker, any luggage, parcels
lost or destroyed are compensated by 17 SDR/kg. The SDR for Special Drawing
rights is the currency used by the IMF (International Monetary Funds) and 17 SDR
are corresponding to 20 USD.
The SDR is a specific international tool crated by IMF in 1969 to add to the
official existing reserves of member states. Its value is based on a set of four
major currencies. SDR may be exchanged against freely usable currencies. With
the definition of a general allocation of SDR the 20
th
August and a specific
allocation on the 9
th
September 2009, the SDR value will be brought to 204.1
billions (an increase of 21 billion, which is today 317 billion dollars). This system
created in 1969 was created to support fixed parities of Bretton Woods. Any
country who would like to enter the system had to hold official reserves, gold or
well accepted currencies which could be used to bought back the national currency
on the international exchange market in order to support its own exchange rate.
But international offer of the two main holdings in gold or dollars was insufficient
to support the trading expansion and their financial evolution that was engaged.
The international community has then decided to create a new holdings under the
surveillance of the IFM.
Only few years after the creation of the SDR system, the Bretton Woods
system collapsed and the major currencies have started to be quoted following a
floating exchange rate. On the other hand, the expansion of the international
currencies market allowed reliable governments to get easier credit lines. This
double evolution has reduced the need of SDR. SDR is not a currency, it is also
not a credit on IFM. It is however a virtual credit on freely usable currencies of
state members of IFM. Holders of SDR may get these currencies in exchange of
SDR on two ways : base on free exchange rates between state members or when
IFM is designating state member whose external position is strong to acquire SDR
of state member whose external position is weak.
In addition of representing additional holdings, SDR is used as counting
units of IFM and many other international organization.

SDR value is determined by a set of currencies
SDR value has been initially fixed to 0.888671 grams of fine gold which was
the correspondence to 1 USD. After the collapsing of the Bretton Woods system in
1973, the SDR value has been determined according to a set of currencies made
of USD, EURO, GPP and Yen. The counter value of SDR in USD is daily displayed
on the website of SDR and IFM. The value is representing the proportional sum of
each of the four currencies making the SDR expressed in USD and calculated on
the basis of the mid-day exchange rate in London.
The composition of the set is reviewed every five years by the board of
Directors to check that the corresponding ration of each currency is in line with
the relative importance of this currency in the international financial system.
During the last review of the SDR value in November 2005, the individual
weighting of the currencies have been revised based on the export values of
goods and services and based on the reserves in each currencies that were held
by the other state members of the IFM. These modifications have been put in
force on the 1
st
January 2006. The next revision has been done in the end of
2010.
Common terms used in shipment
The terms referred hereafter are only mentioned as a reminder because
there are to be seen in a more specialized course which is transportation. This
wordbook is not supposed to be exhaustive neither to be very detailed but it
explains the major terms used in the export business.
Freight consolidation
Pooling of parcels going to the same destination into the same carrier in
order to optimize transportation costs.
Dangerous goods declaration
Dangerous goods are spread into 9 different classes with 3 dangerousness.
Perfumes are considered as dangerous. The goods considered as dangerous by
IATA are listed in the dangerous goods regulations and have to be declared
through the annexed form. This form has to be filled by the sender and has to
include as a minimum the following information : address of the sender and the
addressee, airport of origin and destination, nature and quantities of the
concerned goods, class of danger, united nation number and type of packing used.
If the declaration is missing or is not correctly filled, this can generates very heavy
penalties. It is also highly recommended to check if your usual carrier is accepting
the category of goods that you intend to ship.

UN Class
Dangerous Goods Division(s) Classification
1 Explosives 1.1 - 1_6 Explosive
2 Gases 21 Fiammable gas
2.2 Non-flammable, non-toxic gas
2.3 Toxic gas
3 Fiammable liquid

Flammable liquid
4 Flammable solids 4.1 Flammable solid
4.2
Spontaneously combustible substance

4.3 Substance which in contact with water
emits flammable gas
5 Oxidising substances 5.1 Oxidising substance
5_2 Organic peroxide
6 Toxic substances 6.1 Toxic substance
6.2 lnfectious substance
7 Radioactive material

Radioactive material
8 Corrosive substances

Corrosive substance
9 Miscellaneous dangerous
goods

Miscellaneous dangerous goods

Door to door
Door to door is used for a shipment taken to the sender address and
delivered to the final destination address. As opposed to "Door to Airport" which is
mentioning a shipment where the addressee has to collect his goods in the airport
of arrival.

EUR1
This document is used to get exemption of custom duties for shipment of
goods coming and manufactured in the European Union in direction of certain
countries. It very often replaces the declaration of origin which is reserved to
goods not exceeding 6000 Euros. EUR1 is used for shipment to the following
countries (non exhaustive list) : Iceland, Norway, Switzerland, South Africa,
Maghreb countries, Egypt, Mexico and the majority of Eastern Europe countries
which are not member of EU. The EUR1 form is used as the evidence of origin to
get preferential duty rate to the goods in transit.
When the order doesn't exceed 6000 Euro, a declaration of origin on the
invoice is sufficient. In order to write down a EUR1 form, two conditions at least
have to be respected :
- There must me an agreement between EC and the second country which
allows the use of this document
- Products covered by the document must be originating of EC or from second
country as stated in the agreement.
EUR1 has to be stamped by the exporting custom office, this Visa is given
when doing the custom formalities. This control can also be done by the importing
custom authorities who can ask the exporting custom office to check the product
in case of doubt.

Province de Lige Higher degree
ModuleExportation_ETR_EN_r0

er degree School - Economic studies Academic year
Carpentier F. 2010 Page
Academic year - 2010-2011
Page 56 on 68

Commercial invoices or pro forma
This document has to be attached in 5 samples when shipping outside of EU
or to DOMTOMs. An invoice is called pro-forma when it is with a shipment which
does not correspond to a sale.
Incoterms
Incoterms will define the different logistic steps that will have to be
managed and supported by the exporter. International Commercial Terms are
defining obligations (expenses and liability) of the buyer and the seller when
having a sales-purchase international contract. There are 13 incoterms. However
only 3 are usually used in express transport.
EXW (Exworks) : The seller has no more responsibility of the goods when
it has left his premises. It is the addressee who take care of the transportation.
DDU (Delivery Duty Unpaid) : The seller has the responsibility of the
goods until the final point of destination. The buyer has to do the import custom
steps as well as handling for unloading to the destination. It is the usual incoterm
in the express transport.
DDP (Delivery Duty Paid) : The seller has the responsibility of the goods
until the final destination of the goods. He also takes care of the customs steps
only handling for unloading is taken in charge by the addressee. This is the ideal
solution for the addressee who has nothing to do neither to pay. Only few carriers
are accepting to have the load of the custom duty.
When no incoterms are mentioned or negotiated for a delivery in express
transportation, it's DDU that is used by default.
Trans-shipment
Action of a good which is transferred from one transport mode or storing, to
another one. The more trans-shipment will happen to a good, the more risk this
good has.

Rules and barriers for export
In principle association like WTO (World Trade Organization) are writing
documents ruling and organizing trade between countries. According to its website
definition "The WTO is the only international association which is taking care about
rules on trade between countries. His main function is to favor as much as
possible the well going forecasting and freedom of exchanges."
The WTO has been created in 1994 on the basis of GATT (1947 General
agreement of Tariffs and Trade : which was the agreement ruling all customs
tariff. Customs tariff has been set to organize the in trade on a given territory.
They have been and are still a direct tax system on import goods to satisfy the
needs of the country of import. They have also been used to limit the import of
some goods and the drift of a system. They are favoring domestic production
towards import. On top of the direct funding from local companies, this trick is
also influencing the commercial balance by favoring the internal market to the
export market.
Depending on their type, exported goods are given a known international
code called the custom tariff or the custom code. This code is given a specific
tariff.
In the EC, this tariff is now set at a European scale and not a national scale.
It is described in a European publication :"Rule CEE N 2658/87 of the board, of
the 23
rd
July 1987, related to the tariff and statistic designation and a common
custom tariff (Official Journal L 256 from the 07.09.1987).
There is another document called Taric which is the integrated custom tariff
of the EC. Taric is gathering custom right rates and a state regulation applicable to
external commerce of the EC. Taric allows the automatic custom payment of
goods by the member states, it also allows to collect, exchange and publish on an
optimal way statistic data about foreign trade exchange in the EC. The second
goal of the tariff designation is to pool codes in order to make statistics about
goods movements with their value.
In Europe, its guiding principle is then to organize free circulation of goods
and people and all the EC ruling is pushing into that direction by trying to limit as
much as possible trade barriers and barriers to circulation of goods and persons.

Taric custom code is made out of a fixed four digit number describing the
general category and a supplemental 6 digit number describing the very product.

Figure 4 - Taric code examples, designation

Online website from the EC are able to simulate not only tariff but also
specific export restriction regarding the nature of the product and country of origin
and destination.

http://ec.europa.eu/taxation_customs/dds2/taric/taric_consultation.jsp?Lang=en&SimDate=20110121

Figure 5 - TARIC Database search

Export license
Some product will need to obtain an export license and will require a
specific procedure. In general, these products are those having a military or
nuclear use, a very important of danger or a dual use possibility. The export
license is written by the government of the country of origin and consists in an
export license given for the specific goods, the quantities and the declared
destination.
Getting such a license is quiet long : one or two months and may call for a
government assembly. Very often, getting this license is submitted to prior
submission of end user certificate which describes the details of the end user and
that the declared use will be the one announced.
The existence of an end user license doesnt guarantee getting the export
license but it's absence on sensible territories or in conflicts is a sign which should
be bringing mistrust.

Figure 6 - Taric restrictions
Temporary imports, transit
In certain cases, when a good has to be deeply modified in a territory
before being exported to another territory, it can be subjected to temporary
import status. During that period, this good will not be taxed. These temporary
import are to be administratively monitored and have a limited period for
exemption. The exemption will automatically finish when the good will be exported
again or when the maximum duration of temporary import has been elapsed.


Use of national agreements
If the direct export on the territory is sometimes looking as the best
solution, it is not always the case, when the exporting country deosn't have
agreement with the country of import. In certain cases, historical relationship are
existing between countries and they have been creating exception rules to ease
trade and they are only applicable between two distinct states while they are
sometimes in the same economical entities. This is for instance the case for
overseas territories in France or for certain British islands when they are trading
from England.
It is totally possible to use these particularities and to profit about
substantial reductions to the condition that the exported goods are covered by
interesting customs rates. In order that system can be applied, either the final
production has to be identified as coming from the country which has specific
agreements (joint venture cases) or that transformation when passing to the
country where these agreements are existing is sufficient to justify the label "local
origin".
In most of the cases that are in the EC, what is measuring a sufficient
degree of transformation on top of what is calling a change in the custom code
two main criteria are used to replace ( or complete) :
1) Added value criteria : essentially used to determine the origin of the
industrial product. The incorporated imported product cannot exceed a
certain percentage of the value of the final product
2) The specific laboring conditions. Some goods are submitted to particular
rules describing the labor done. This is, for instance the case for a lot of
textile products.
The criteria allowing the change of original custom tariff will be applied
everytime that a transformation will be considered as sufficient.
Custom codes changes, sub-assemblies
Classification of a product in a specific custom class and therefore the
application of a given tariff is function of the use, composition or nature. According
to the description given, one product can be placed in one category instead of
another. The tax on some product being higher than on others, it is very
important to be sure about these factors.
The splitting in sub-assemblies (OEM cases) is certainly changing the nature
of the goods regarding customs. This sometimes helps getting a more interesting
custom code and is a very efficient way for exporting goods without getting a too
important tax. When goods are heavily reworked, meaning those who have a very
important labor charge, the tax will be put mostly on the labor value which is not
very interesting. For our well developed countries, this will add costs on an
already very high labor expenses. It may then be very efficient to have a local
transformation of the goods.

Export pricing
If finances are an essential fact to a company, it is much more sensitive on
export market because revenue is loaded by a very big number of variables which
very few are under control of the export company. Export pricing must take into
account several factors :
- Local currency and the position regarding their currency of reference
- Costs
o Distribution channel
o Transformation
o Conformity of the product for the local market
o Logistics
o Transportation
o Distant support
- The reference price of similar product when existing as well as local
economic pressure
- Commission level and expected level
- Inevitable middle men on some markets
It is not in the scope of this lecture to describe all financial mechanisms in
detail but some are really classics in the frame of the export and will be hereafter
described.
Foreign currencies
If it's still possible to operate in a foreign country with its own currency, it is
not the local economic truth and it will always bring problems or will generate
negotiations when exchange rates will not be in favor of the local currency. When
accepting local currency transaction, the company is giving a very professional
image and maybe reinforced to negotiate other points. The bad side of this is that
the company must cover exchange losses risks. In some cases, the company will
not be able to select the working currency because the importing country is
imposing the currency or because the currency is not available locally. Sometimes
this currency is set by uses like GBP or USD.
The techniques for managing currencies maybe internal or external.
Internal techniques
Following an exchange rate on a reference period will help understanding
what is the potential fluctuation level and therefore the potential fluctuation of the
sales revenue. If the revenue is directly converted into the original currency and
doesn't transit to a local bank account, gains or losses can totally eat the margin if
there are no coverage systems for the currencies. One must also know that for an
annual tax accounting, foreign currencies are valued to the exchange rate of the
date of closing which is called principle of precaution. On that date there will be a
gain or a loss. It is then highly recommended to have covering operations
(external techniques) before this deadline and at least before getting the
currencies in the accounts.

When the company is correctly managing forecasts and analysis of
exchange rates, it is possible to play on reception date of invoices or payment
dates of commissions.
- Leading has to be used when payments are coming a strong currency or
when receiving funds in a weak currency.
- Legging has to be used when receiving funds in a strong currency or when
paying in a weak currency.
This leads to the following table
Importer Exporter
Strong currency (forecast of
a strength increase)
Leading Legging
Weak currency (forecast of
a currency slow down)
Legging Leading

The netting technique consists in using received currencies for one's own
use in the same currency. The exchange rate is then determined to the balance.
This however imposes :
- To limit the number of different currencies in order to proceed to a
maximum of application cases,
- To rule payments and receivable dates in order that the values entering are
compensating the values exiting
There are seldom occasions, when two companies are deciding to apply
netting between themselves, this is bilateral compensation and means that they
are customers to each other.
Finally, it is highly recommended to have specific clauses in contract
regarding the exchange rate variation. It is then necessary to define for example :
- A range of exchange rate changes (mini and maxi)
- A ruling about sharing exchange rate variations
- A selling price evolution in regards with exchange rates
- A payment date in regard with contract signatures
- Etc.
External techniques
Unless there is a use for the collected devices, it may be very advantageous
when the value and the reception date of the currencies are known, to have a
bank contract called exchange rate coverage. The bank states and locks an
exchange rate to the condition of receiving determined amount in currencies at
the latest on the date of completion. The reference rate is locked and no matter
the fluctuation of the currencies, it will be guaranteed. The side effect of this
mechanism is that if the exchange rates are becoming better, there will be no
positive impact on the fixed exchange rate. In order to get a revision of the rates
to a better value, it is necessary to pay a premium. This then will only be usable
for very high volumes.

Local list prices
In a given market is corresponding a local economic context which will
generate a specific price. This environment is as unique as the contacts with
external market are limited. This however never last long.
It is commonly admitted that prices and use in a said economical zone
which would have a very good geographic connection will always tend to
harmonize due to exchanges. Prices are first going down by the low prices market
(opportunism effect or treasure hunting by clients) and then are going
progressively up when all prices are aligned.
On very well connected markets, it may be very dangerous to use two
different prices without measurable and visible reasons. For distribution
companies or those who have different operating headquarters in different
countries, the supply price will have to stay in the same range because it will be
easy to compare it. In this very case, it is the distribution channel who will benefit
from its knowledge of the market to collect any additional margin.
Setting of specific price lists is greatly depending on the knowledge of the
value of the good in the country of export. Distribution channels must be the first
information source regarding this but it is important to note that if the effective
sales price is higher than the one set, unless the contract states the maximum
sales retail price (MSRP), it is the channel who will get the difference in his pocket.
If the distribution channel declares higher selling price as being the MSRP to the
supplier, he will not be able to get a commission on a higher price. It is then
recommended to monitor this factor in order to get the best revenue and set
consistent prices.
The distribution channels appetite is a very frequent cause of failure, mostly
for products which volume are low because they try to get in very few operations
a very high revenue by highly increasing prices. The opposite is also true. Some
are doubling the price to the customer who is still considering this price as
acceptable while the supplier has been asked to set its sale price to the channel
down.
It is always better to set a price list a little bit above the market price and
to give a more important commission to the distribution channel who will then
apply the price to the customer and will get a good margin or even increasing it a
little bit. If the price is really too high, he will still have the possibility of
discounting because his commission level will allow it.
When using different pricelist, it is very important that all these price lists
can be managed and identified at all time otherwise there is a risk that questions
may arise to explaining differences. A system can be set with price lists applicable
on a set of territories instead of isolated countries and this system can be
completed by a commission level which will be calculated on volumes, efforts to
produce, type of products, relative value.

Financial risk coverage
When selling abroad, it is very difficult to get back the product. If you had
on top the fact that you are operating in local conditions which are not very often
in our favor as foreigners and that exchange rate risks are in addition, financial
risks are real. It is also very frequent because being a foreign company that the
customer will ask for bank or performances guarantees. These have to be
provisioned and sometimes let down when things are not running the way we
expected.
There is no protection against these two elements but delivering and
performing as required and stated in the contract. Regarding the credit payment,
there are credit insurances which are only dealing with this. In Belgium, the local
institute is Ducroire on which you can address your request for having a global
coverage for the majority of export territories. This coverage is paid by a
commission on the global sales value. Attention, this system is not allowing
everything and some countries are classified as too dangerous to be covered.
The affiliation to a risk credit institute is however giving a very cold vision of
the territories of export which can be used when there is no experience or
experienced financial department. The risk taking is very minimal when their
advices are followed and the payment risk is covered by a coverage which will
refund in cases of losses but the time to get them may be important.

Figure 7 -DUCROIRE tool

Conclusions
Export is calling for an adapted structure, the setting of monitoring and
strategic tools which are not usual in domestic sales. If the majority of techniques
is finally related to marketing techniques, it is highly advisable to take into
account other factors like environment, tax and social, to increase the chances of
succeeding in the export steps. As on a domestic market, the exported goods have
to meet the expectations of the target but it is very difficult to measure it because
of the distance to the market and the cultural differences that may exist.
Because the access to the target depends on the channels put in place, the
company has to put sufficient resources for evaluation, development, animation,
support and monitoring of the channel it uses. The financial risk is very present on
export market and it is important to remain highly critical and reactive to get out
of it if needed instead of trying by all means to stay in a place where results are
not good. This being said, timescales are different and therefore sufficient
resources must be addressed for enough time to have the time to validate a
concept which starting might be slower than on a domestic well known market.
This lecture is too short for seeing all export aspects in details and some
aspects have been seen deeper than others either because they were more
important or because the writer has met them more often.
This syllabus is completed by references, articles and books where there are
a lot of elements that can help completing someone self-training. However, this
will have an absolute need of being completed by experience obtained when
working on export market.

Bibliography and useful sources
Internet
http://statbel.fgov.be/press/f1065 Statistics in the Belgian economy
http://www.tarif-colis.com/1-14-
Dico-du- colis.php
Transport and pricing
http://www.eur- Wordbook about Export
export.com/francais/apptheo/logis
tique/ douane/regdouane.htm
http://ec.europa.eu/taxation Customs Codes and Taric
ds/tarhome fr.htm
http://www.imf.orq/external/np/exr
/facts
IFM Rules
/fre/sdrf.htm
http://www.intracen.org/tfs/docs/g
lossar y/If.htm
Wordbook about finance and commerce
http://www.mondissimo.com/f url General data oneconomies of countries
http://europa.eu/leqislation Customs rules in Europe
customs/I11003 fr.htm
http://www.cambiste.info Exchange rates data and coverage
systems

Bibliography
See notes in the text

Revision and editions

Nom Date dition Objet
ModuleExportation_ETR_r0 10.2009 Version initiale
ModuleExportation_ETR_r1 02.2010 Correction ditoriale
ModuleExportation_ETR_r2 01.2011 Refonte ditoriale et 1
re
rvision, ajouts
, actualisation
ModuleExportation_ETR_EN-r0 02.2011 First English edition based on R2 FR

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Province de Lige Higher degree School - Economic studies Academic year - 2010-2011

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