International BusinessInternational Business

• The Business

Of

International Business

Topics We will CoverTopics We will Cover

• Government Agencies– The BIS– Customs

• Freight Forwarders • Customs Brokers• Powers of Attorney • Getting Paid

• Quality and Liability• Deals/Agreements• Financial Impacts• Planning Your

Business

First Things FirstFirst Things First

• CurrenciesThese are important to any international trading business

CurrenciesCurrencies

Currencies

What does this mean?What does this mean?

January 2002 134.06 JPY to USD

I buy products from Japan. When I pay the invoice, I take my dollar down to the bank and they exchange it for 134 JPY

So if I owe my supplier 13,406 JPY, I must have $100 to pay them

Fast forward to Jan. 2010

Now I must have $145 (not a hundred bucks) in USD to pay my supplier.

My costs just went up thus my prices must go up.

What does this mean?What does this mean?

92.55 JPY to US Dollar

Currency and the GDP

Government AgenciesGovernment Agencies

Top Two Prime Agencies You Should Know

• Bureau of Industry and Security (BIS)• US Customs and Border Protection (CBP)

Note the publications like “don’t let this happen to You!”

Resources

http://www.bis.doc.gov/

The BIS Website offers various seminars, webinars, FAQs, and “contact a counselor”

The Fed. BIS ResourcesThe Fed. BIS Resources

BIS ActivitiesBIS Activities

• Company in PA was fined $40,000 for falsifying information to make illegal exports of graphite products that can be used in nuclear reactors and nose cones of ballistics missiles.

• A company was fined $264,000 for exporting pumps and valves to Taiwan, China and Israel. Items could be used in chemical and biological weapons and required a license.

Many violations involve falsification of information; disregard of licensing requirements; misrepresentation of material facts and documentation

Illegal Export of aircraft parts to IranJoint Investigation with Customs

BIS More ExamplesBIS More Examples

These triggered spark gap can be used for nuclear detonators

Example of chips that are capable of being used to construct IEDs (Improvised Explosive Devices)

The Fed BISThe Fed BIS

• The Bureau of Industry and Security’s paramount concern is security of the USA  They provide:– US Export control

• Commercial AND military applications

– Enforcement of Anti Boycott laws• require U.S. firms to refuse to participate in foreign boycotts

that the United States does not sanction. – International Treaties Compliance

• Chemical Weapons Convention (example)

Dual use

The Fed. The BISThe Fed. The BIS

• How is it Enforced?– Voluntary compliance of trading community to

Export Administration Regulations (EAR)– Export Licensing Determination

• What are you exporting• Where are you exporting• Who will receive the item• What will it be used for

Note: They have a law enforcement agency

The product is researched for applicability

The Fed. Export LicensingThe Fed. Export Licensing

• The ECCN (electronic control classification system)• An ECCN is an alpha-numeric classification used in the

Commerce Control List to identify items for export control purposes – Determine yourself by using the Commerce Control List– Go to the source; ask the manufacturer– Request an official classification from BIS (949 660-0144 )

• Hints and tips– Most items do not require a license (EAR99 or NLR)– Start the process early– Denied countries; denied parties may apply even if NLR

The Fed. The ECCNThe Fed. The ECCN

Commerce Control List Categories0 = Nuclear materials, facilities and equipment (and miscellaneous items)1 = Materials, Chemicals, Microorganisms and Toxins2 = Materials Processing3 = Electronics4 = Computers5 = Telecommunications and Information Security6 = Sensors and Lasers7 = Navigation and Avionics8 = Marine9 = Propulsion Systems, Space Vehicles, and Related Equipment

The Fed. CustomsThe Fed. Customs

• Customs and Border Protection (CBP)– Part of Homeland Security– Keep terrorists and weapons out of USA– Secure and facilitate trade – Process $2 trillion in legitimate trade

collecting more than $32 billion* in duties and taxes

{It is estimated that more than 40% comes from textiles}

Customs and Border Protection

Technical CustomsTechnical Customs

• The CBP Website offers:– Compliance publications– Importing into the USA– Internet Purchases– Export Documents and Requirements– Importing or exporting a vehicle– Locate a port and broker that you may use– Medications and drugs (prohibited)

– Becoming a customs officer/customs broker

And an excellent FAQ section…Don’t miss it!!!

Technical CustomsTechnical Customs

Basic importing and exporting information is offered by the Customs website

Technical Locate a PortTechnical Locate a Port

It can be important to contact the port that will handle your transaction

Click on a state and look for a port that you would use

Customs FAQCustoms FAQ

Search by • Keyword • Topic or• CategoryA series of questions with answers appears

CustomsCustoms

• Customs Officers Duties– Collect import duties, taxes and fees– Protect US Businesses from theft of Intellectual

Property – Regulate trade practices to collect the appropriate

revenue– Maintain export controls– Provide agricultural inspection activities at the ports of

entry

Not customs brokers!

CustomsCustoms

• A Typical Day in Customs• 1.1 million passengers and pedestrians, including 680,000 aliens

• 70,900 truck, rail and sea containers

• 240,737 incoming international air passengers

• 71,151 passengers/crew arriving by ship

• 327,042 incoming privately owned vehicles

• 85,300 shipments of goods approved for entry

• $84,400,000 in fees, duties and tariffs

• And of course the illegal

•3-tons of Narcotics seized

•$160,000 in illegal currencies

•$650,000 of fraudulent merchandise

•4500 prohibited meats, plants and animal products

Customs BrokersCustoms Brokers

• Customs brokers (Not Officers)– Private Individuals

• Partners, Corporations, Associations• Licensed, regulated and empowered by U.S. Customs

– Assist in Meeting Federal Requirements• Getting merchandise through customs inspection.

– Submit necessary Information and Payments to CBP • Charge a fee for this service.

NOTE: Examination is required to become a customs broker

Power of AttorneyPower of Attorney

• Customs Brokers will also– Validate the Power of Attorney

Allows the Customs Broker to authorize the movement of merchandise into the United States, it is critical that the POA be examined carefully to verify the identity and legal authority of the party. • Who is it? Is the business/person real? • Tax ID number or Corporation Number• Are they restricted persons as determined by the US

Government

Customs Broker Role (POA)Customs Broker Role (POA)

Customs Broker Role (POA)Customs Broker Role (POA)

Shipping Costs Shipping Costs

Shipping Cost Factors• mode of transport-• distance/destination –• weight and volume • value

NOTE: Hazardous materials, oversized goods, animals, other irregularities may add costs

• airfreight , road, rail or ship• Full Container, partial

container, cubic feet of space• Distance and unusual

destinations• charges are usually based on

the weight of goods, but calculation switches to volume above a certain threshold

• in some instances, such as woolen textiles, charges are calculated on the basis of goods' value per ton

ContainersContainers

20 ft.

40 Ft.TEU = 20ft. Equivalent unit.Practical limit of a 20ft. Container is approx. 1000 cu. Ft.

Technical Shipping CostsTechnical Shipping Costs

Fee Type Fee Basis Estimate Comments

Container Ship 40ft/20 ft/Partial Low/Med/High Depends on what you ship

Customs Broker Flat fee or % Est. $100-150

Bond Fee Flat Est. $50-$500 Guarantees payment of Duties

Various Fees % and Flat Fee Est. $100 Port/Dock/ Processing

Inspection Fee X-ray/Full Est. $150/300+Not all get Inspected

Duties/Taxes Based on Value 4-7% Varies

Courier/postage Documents $50-$400 Varies

Delivery/Storage Trucking $100-$1500 Size and distance

Surety Bonds Surety Bonds

• A CBP bond insures the performance of an obligation like duties and taxes

• Continuous– Approx. $500 per year– Bases on 10% of

$50,000 minimum

• Single Entry– Total Amount estimated

to be due

• Advantages– Take possession

before all paperwork is completed

– Move goods from one location to another before duties and taxes are paid

Technical ExampleTechnical Example

• At the time the product was purchased, a flooring distributor was selling a certain type of marble tile for US$1.73 per sq ft, so that was a target price.

• A Chinese supplier was pricing an identical marble tile for $0.63/sq ft. An order was placed for 7,500 sq ft. which was a 40 ft. container

Activities Cost Est.

Invoice $4725

Ship and Duties 4989

Delivery Trucking 2035

Exam and Inspect 900

Misc. and Storage 1300

Total Cost $13,849

Cost Per Sq. Ft. $1.84*

*Excludes cost of Letter of credit if required

Duty and TariffsDuty and Tariffs

The US International Trade Commision (USITC)

• provides the Harmonized Tariff System (HTS) which identifies tariff rates for all merchandise imported into the United States; There is a similar Global System

• However, the CBP is the only agency that can provide

legally binding advice or rulings on classification of imports.

• NOTE: General “Helpline”, publications and opinions are not binding.

Identifier Number

Specific Description

Basic Tariff

Special Rates Most favored Nations

Non normal trade relations

http://www.usitc.gov/tata/index.htm

QuotasQuotas

Authority derived from specific legislation• Absolute-no more than a certain amount

during quota period• Tariff Rate Quota-Reduced duty until

quantity reached then the duty increases

• Textile Visa-endorsement in the form of a stamp on an invoice or export control license that is executed by a foreign government.

Shipping Shipping

Terms You Should Know

• Freight Forwarder

• Google Listing of Freight Forwarders

• One Stop Shopping• Book Cargo• Accurately Prepare

Documentation• Plan Route• Get Goods to

Destination on Time• Be Advisor and Agent

for the Shipper• Customs Brokerage

Services

Google Freight ForwarderGoogle Freight Forwarder

Directories and specific forwarders

Sources to ConsiderSources to Consider

Familiar Faces

• UPS

• Fedex

• DHL

Services offered:• Consolidation services• Air and ocean cargo

transportation• Customs Clearance• Legalization of documents -

keep up to date on the rules and regulations for every country we ship to and from

• Web-based tracking • “My Account” access

Example of FedEx website.Note the topics

Online completion of documentation

UPS Ocean FreightUPS Ocean Freight

Freight Forwarding

Features

Benefits

UPS Service Matrix What They DoUPS Service Matrix What They Do

        

                                                                                                      

  

MarketingMarketing

Before You Start Where does your opportunity

come from? – Product Knowledge and Industry Experience– People You Know in an Industry– Friends, Family, Acquaintances

Marketing Your opportunityMarketing Your opportunity

You may have sales and marketing experience but not in the particular industry

You have general business experience but not in the international area

•You “own” the product and are having it manufactured in another country

•You found the product in your travels and think you can sell it in the USA

•You have a friend or relative that manufacturers a product in another country and they want you to sell it in the USA

MarketingMarketing

• Sliding Scale of Success– Product & Market Knowledge– Demonstrated Capability– Good Business Instincts– Sales and Marketing Ability– Financial Resources

The more you add to your “resume” of experiences the higher the probability is to succeed

Marketing Some TermsMarketing Some Terms

• FOB (Free on Board) port of exit price (on vessel)

• CIF (Cost Insurance Freight) US port of entry price– Insurance may not be adequate

• LDP (Landed Duty Paid) price at US port of entry and cleared through US Customs;

• DDP (Delivered Duty Paid) price delivered to the customer (ex. retailers distribution center.)

NOTE!!!

MarketingMarketing

Export Marketing• US Commercial Service and Export Assistance

Center (export.gov)

• Alibaba.com (both import and export)

• International Business Directory• Newport Beach DOC (US Commercial Service)

Marketing AlibabaMarketing Alibaba

Note GOLD SUPPLIER

Check out the forums and community

Newport Beach DOC Export Programs

Newport Beach DOC Export Programs

• Commercial News USA (publication)– Run an ad that reaches 450,000 readers in 145

countries and at trade shows

• International Company Profile– Credit Checks and Background

• International Partner Search• Single Company Promotion• Gold Key Service/Platinum Key Service

Marketing The PlayersMarketing The Players

• Export Management Company – The do all company that handles all export operations for a

domestic company including marketing and sales, shipping, financing and taking title to the goods.

• Export Trading Company– Finds what foreign buyers want and hunts down domestic

sources willing to export.

• Import/Export Merchant– Free agent entrepreneur who finds markets, buy the

merchandise, packs, ships and resells on his/her own

Marketing To the End UserMarketing To the End User

• Manufacturer's representative– Specializes in a type of product or line of products; provides

product assistance, limited warehousing and technical service

(see manaonline.org for domestic sales)

• Distributor– Buys the imported product and sells it to a retailer or other agent

moving it closer to the end user

• Representative– pitches your product to wholesale or retail buyers, then passes

the sale on to you; differs from a manufacturer's representative in that he doesn't necessarily specialize in a particular product or group of products

Marketing Marketing

• The Deals You Can Negotiate• Exclusive Arrangements

– By Product– By Region or Country or area

• Full Rights-Limited Rights• Enforcement Issue• Fund Transfers

Marketing Marketing

• Closer Examination of a Couple of Possibilities– A Distributor

• Exclusive or Limited• Role of a Distributor

– Inventory Stock $$$– Marketing and Promotion $$$

» Customer Service $$$» Sales Representation $$$

– Staying Power

MarketingMarketing

Or

– Be a Commissioned Agent• Least Risk• Minimal Cash Required

MarketingMarketing

• Controlling the Quality and Liability

There are services available that will check your product before shipment

You generally cannot escape the liability. Check out business insurance.

Financial PlanningFinancial Planning

• Getting Paid or Paying Suppliers– Letter of Credit– Wire Transfer– Deposit plus full pay before ship– Payment Terms

• Payment Terms and Currency

• Capital Requirements– Lead times Cash Inventory

Letter of Credit Buyer, seller, bankLetter of Credit Buyer, seller, bank

Letter of CreditLetter of Credit

• Cost of a letter of credit is generally a percentage of the value of the letter of credit.

• Estimates of 1-8%; some as low as .3% in China bank• Cost of the letter of credit for the issuing party is

absorbed by the buyer• Many exporters have mistakenly understood that the

payment is guaranteed after receiving the LC. The issuing bank is obligated to pay under the letter of credit

• only when the stipulated documents are presented and the terms and conditions of the letter of credit have been met.

Letter of Credit Letter of Credit

• Where there is money involved there are always schemes and scams.

• Best advice– If it is too good to be true it probably is– Research your contact– Know the L/C documentation terms and

procedures

NOTE: Ex/Im bank can provide forms of insurance against non-payment

The Case StudyThe Case Study

• Next you are presented with a case that will show you how a typical “deal” might work.

• It is simple by design to illustrate the process and implications

Financial PlanningFinancial Planning

Simple Case Study

You start with $20,000 – You have an agreement– with a Taiwanese mfg. – to market and sell computer heat syncs in

North America• The agreement includes the requirement to issue a

letter of credit for all orders.

General DetailsGeneral Details

– Heat syncs cost $12.00 per unit– Min. Order quantities = 500 pcs.– Sales Price = $18.00 each.

*OEM stands for Original Equipment Manufacturers

The Business DealThe Business Deal

• First order is 500 @ $12.00 $6,000• Delivery to your door is in 75 days• You pre sell 300 of them in the first 30 days (before the order arrives)• To maintain your inventory level you order 300 to replace your pre sold units and another 500 for inventory

– Cost of 2nd (800 x $12) $9,600

Continuing On…Continuing On…

• First 500 pcs. Arrive and you ship and invoice the 300 units you pre sold.

Terms @ net 30. • Now you sell another 150 units just after

the first order arrives

• Is this business in good shape? Would you invest in it??

What You DidWhat You Did

• Activity– Starting Bank Balance $20,000– 1st Order ($6,000) – 2nd Order ($9,600) – 1st Sale +$5,400– 2nd Sale +$2,700

Your Business Deal (Con’t)Your Business Deal (Con’t)

• Cash available to you now is

– Started with $20,000– Purchased $15,600

• This would buy an additional 350+ units for your stock

You sold some units but your payment terms were net 30

$4,400

Analysis of the DealAnalysis of the Deal

• Good profit margin• Needs cash to sustain sales

increases in sales volume

The more you sell the behinder you get!

CoveredCovered

• Currencies• The Fed• Marketing• Shipping• Business

There may be more involved that you originally think but it is doable

THANK YOU FOR HAVING ME