Nothing ventured…
A guide to exporting for small and medium-sizedenterprises (SMEs)

The opportunities areout there
The scope for exporting
Have confidence. You may think thatinternational trade is only for large
companies - and it’s true that, until quite
recently, this was an arena dominatedby those who had the critical mass andextensive organisational reach needed toaccess foreign, often distant, markets.
But times are changing. The internet andthe growth of international production
networks now allow small and mediumsized enterprises (SMEs) to engage fully
in international trade.
For instance, e-commerce has opened
doors to exporting for SMEs by allowing
them to connect with distant customers
at relatively little cost, while international
production networks mean that SMEs
- those that might otherwise havedifficulty competing in the market forfinished goods or services - can tradeprofitably within a global value chain.
To underline both the opportunities
and the benefits that SMEs can derivethrough exporting, a 2017 report fromthe Organisation for Economic Cooperation and Development (OECD)
entitled ‘Enhancing the contributions of
SMEs in a global and digitalised economy’said this:‘Stronger participation by SMEs in global
markets can help to strengthen theircontributions to economic development
and social well-being, by creating
opportunities to scale up, accelerating
innovation, facilitating spill-overs oftechnology and managerial know-how,broadening and deepening the skillset, and enhancing productivity. In
addition, greater flexibility and capacity
to customise and differentiate products
can give SMEs a competitive advantage
in global markets relative to larger firms,
as they are able to respond rapidly
to changing market conditions andincreasingly shorter product life cycles.’That sums up concisely how SMEs canbroaden their horizons by exporting.
If you’re contemplating exporting forthe first time, our aim at Atradius is tohelp your venture to be successful and toencourage your entrepreneurial spirit.

But, as this guide seeks to help you
understand, there are many questions
to be answered before you set out on
this journey. And yes, international trade
always involves an element of risk, so
we want you to approach those risks in ameasured and managed way.

The first step on yourjourneyYour motivation to export
At the outset, there must be a goodreason for you to consider exporting yourgoods and services. Perhaps it’s simply
to achieve increased sales and, in theprocess, economies of scale.
Maybe your home market is becoming
saturated, over-competitive, or subject toan economic downturn, so that exportingis your only viable option. Or, thanks to
the instant information channels that
we all enjoy in today’s ‘global village’,
perhaps you’ve already identified thatyour products and services aren’t widely
available in other countries, so that
foreign demand could give you a readymade competitive advantage.

You’ll find early on that exporting isvery different to doing business in yourhome market. For one thing, it’s usuallyless profitable at first and it may taketime to reach break-even and recover
your initial costs. It will probably involve
more red tape, and can be a real logisticalchallenge. And, of course, you’ll bedealing with a foreign business culture,
which can be very different to what
you’re used to.
Above all, getting paid by foreign
customers can be a lot tougher – not least
because you may have fewer legal rights
overseas if you have problems getting anexport customer to settle their bills.

Whatever the reason, there’s one basic rule to follow if you’regoing to consider exporting – it must make business sense.
Do you have the resources to expand
your business abroad? How much will
you have to invest? Do your workers
have the right skills or will you need tobring new people into the business? And
importantly, do you have the capacity tomeet the hoped-for increase in orders?

But don’t let this deter you. As manyothers have found, none of these issues
are insurmountable.

Do your homework
Choosing your export markets wisely
Two words: ‘Market Research’. And it isn’t just a case ofchecking that there’s a demand for your products and services.
It also means understanding the economic stability of yourchosen export destination, its legal and regulatory frameworkand its business culture - and of course, the level of competition
already there.
If the payment practices of the country are poor and there are
few legal safeguards in place to ensure you get your money,
then you have to ask yourself whether it’s really worth the risk.
To assist exporters,
At first, many new exporters choose to target countries thatare similar to their home market: for instance in terms oflanguage, standard of living and buying behaviour.

A useful source of information about world markets is theWorld Bank Group’s ‘Ease of Doing Business Index’. Updated
annually, this extensive study assesses various aspects ofconducting business with 185 world markets, in categories
that include the cost and complexity of cross-border trade,
enforcing contracts, resolving insolvency issues, and thetransparency of business regulations.
While, like many others, you’ll no doubt want to create a culture
within your business that’s customer-focused rather thancompetitor-focused, it’s still a useful exercise to see where yourcompetitors are exporting, as this may help you understand thelevel of demand and also whether there’s room in the market
for another provider.

Atradius regularly publishes on its website in-depth reportson the economic outlook and typical payment practices of theworld’s top export destinations. These are designed to help you
weigh your options.
But wherever you decide to export, make sure that yourmarket research encompasses the potential size of your target
audience, as well as their tastes and purchasing power, as thiswill indicate if and how you’ll need to adapt your products andyour pricing for that market.

With your initial market research complete, you’ll need todevelop an export plan that covers all of these topics andsets objectives for expected volume, revenue growth andprofitability, marketing and logistics. Not just for your own
product planning but also to assist in seeking any additional
financing that you may need.

When in Rome…
Understanding the business culture of your export markets
In a world of fast travel and even fastercommunications, it’s easy to think of the‘global village’ as if it’s a marketplace inwhich everyone behaves in the same way,
has the same business manners and thesame outlook.

How you conduct yourself during
customer meetings is just as importantin securing a deal as the cost of yourproducts, and understanding thebusiness culture of the country you aretargeting cannot be overstated.

The truth however is that, although we
certainly do live in a world that offers
vast opportunities for trade, the culturesof trading nations remain steadfastlydifferent.
And of course this can cause problems for There are many sources of advice – online
business people trying to break into new and offline - on the business cultures ofdifferent countries and it’s well worth
and often unknown markets.
studying these and, even better, visiting
your chosen export markets, perhaps■■ How should you approach new
as a member of an organised tradeprospects?
mission, to see first-hand how business is■■ How do business people speak toeach other at meetings in this or that conducted there.
country?

■■ Are you expected to be formal orinformal?
■■ What behaviour or topics ofconversation might cause offence?

Having a local partner to attend businessmeetings with you can also help tosmooth the way to a successful deal. As
we’ll cover next, local representation may
also be vital to making your presence felt
in your export markets.

Establish a foothold
Creating a presence in the market
There are two key aspects to consider here: the logistics ofdelivery to your chosen markets and the local representationthat you may require.
The route that you use for your home market may not besuitable for your export markets. In addition, selling direct may
involve more set-up costs and local knowledge on your part.
But, on the other hand, the upside of going it alone is that you
won’t have to share your profits.
However, even if your export market is geographically nearby, it
may not be efficient for you to serve it from your headquarters,
and therefore it’s likely that you’ll need some kind of local
representation: someone with a good understanding ofbusiness practices and networks in the market, as well as
language, customs and trading laws.

In simple terms, an agent is effectively an extension of yourcompany, while a distributor takes ownership of your products.
But the differences – and the ‘pros and cons’ - are far moredetailed than can be covered in this guide, so dig deeper.
And, once you’ve made your decision, seek legal assistance indrawing up your partnership agreement.
You could also ‘piggy back’ with a non-competitive local
firm or one in your home country already doing business inyour chosen export market. This can provide you with insideknowledge and, if your line of business complements that ofyour partner, you may have a ready-made customer base too.
It’s worth considering all these options and perhaps starting
cautiously via a third party until you get to grips with the natureand the potential of the market.

This is particularly vital in markets where business people put
a great deal of value in personal relationships.
Do some careful research before choosing a partner to ensurethat they’re a reputable firm, with a proven track record,
adequate geographical coverage, and an experienced team tohandle sales and after-sales servicing.
It’s also vital to weigh the relative advantages anddisadvantages of engaging either an agent or distributor in aforeign market.

Most important of all you need to visit the country to get afeel for the market, your potential customers and to meet any
possible partners.

Make a name for yourself
Marketing your products and service
As touched upon earlier, the internet has made it far easier for
SMEs to promote, and indeed sell, their products in foreign
markets with little outlay.
Many SMEs now market their products and services abroad
through their own websites. In doing so they can bypass more
traditional and often expensive marketing methods, andconnect with new customers quickly and inexpensively.
To maximize the benefits of this form of marketing it’sworthwhile hiring web designers in your export markets tocreate localised versions of your website, not just in terms oflanguage, but also a ‘look and feel’ that suits each market. So
suffixes like .de, .fr, and .co.uk, together with carefully chosen
imagery, will help you create a local appearance and giveconfidence to potential customers in different markets.
What’s more, online retail platforms like Amazon and Alibaba
can make e-commerce even simpler for SMEs, providing a
package of business-to-consumer and business-to-businesssales portals combined with electronic payment services.

And, as already mentioned, your local representative can advise
you on your foreign customers’ preferences, buying habits
and cultural influences, to help you adapt your promotional
messages to suit the market.
For instance, customers in some countries may prefer a formal
approach and in others a more relaxed style. Be careful how
you craft your brand image to suit each market and of course
ensure that you comply with local laws on advertising. And,
when creating promotional material in local languages, use
professional translators to avoid any potentially embarrassing
mistakes.
Your after-sales service is just as important as your initial
marketing and sales process in building and retaining customer
loyalty - yet another reason to have local representation:
someone who can deal promptly with problems or complaints.
In the end, as we said earlier, there’s no better way to ensurethat you’re keeping up with buying trends in your export
markets than making regular visits, meeting both your local
representatives and your customers.

Coupling this form of marketing with some form of local
representation will only enhance your appeal.

Get it right first time
Paperwork, procedures and contracts
Once you’ve decided how you’ll get afoothold in your new export market
and promote your goods and services,
you’ll need to establish administrative
processes designed to ensure troublefree sales.
Through your market research, you’llalready have established that there’s nolaw in place prohibiting the import ofyour products into the market, but you’ll
still need to check whether they can be
freely imported or fall into a categoryof goods that need a special licence.
Making sure that you follow the correct
procedures will avoid delays in delivery
and payment, so get advice from reliable
sources such as government websites
and trade associations.
Factors that will determine whether
any special documentation is required
include the type of product to be sold, itscommodity code, the country of origin
and the product’s final destination if
different from that of your customer’s
country. Always ask yourself: “is anexport – or import - licence required?”

When it comes to the contract of sale,getting the basics right can itself go along way to a successful transaction.
Too often, a sale goes wrong for noother reason than that of basic mistakesin billing: for instance, the terms of
payment aren’t clearly stated on theinvoice, or the shipping documents don’tsatisfy customs regulations. If yourmistakes cause extra hassle for yourcustomers, where will they go next timethey want to order these goods? To acompetitor who gets it right.
Make sure you have your businesscustomer’s correct name on the invoice.
This can be a problem in many countries
where different companies have very
similar names, or even two names: onein their own language and another inEnglish.

Itemise the products on the invoice, so your customer knows
exactly what they’re paying for and ensure the payment
currency, due date and method of payment are all shown. It’s
worth checking on what’s considered the normal credit period
for your kind of industry in each export market. Atradius’‘Payment Practices Barometer’ reports, published online, may
prove useful as they examine both credit terms and payment
practices in many countries.
Issues such as the point of delivery are important too, because
you may be shipping your goods a long way – so you don’t
want to get embroiled in a dispute if the goods are damaged intransit.

An arbitration clause in the contract can ease the way
to settling any disputes that may arise. As an additionalsafeguard, wherever possible include retention of title so thatyou retain ownership of the goods until payment is made.
With the right to reclaim unused goods from your debtor’s
administrator you can at least recover your capital cost. It canalso give you added bargaining power as an unsecured creditor
if the administrator requires your delivered goods to continue
trading. There isn’t a standard form of words for retention of
title clauses and not every market recognises them, so seeking
legal advice to draft a condition that meets your requirements
is a must.

A well-drafted retention of title clause in your contract of salecan avert major problems if a customer goes insolvent leaving
you with unpaid invoices for the goods you’ve delivered.
Stipulate which national law applies to the contract, in case
you have to revert to legal means to recover payment. And be
careful in your choice of governing law so that, if a dispute does
arise, you aren’t left at a disadvantage because the laws of thedestination country are biased towards the customer.

Be competitive
Balancing risk and reward
Your payment terms can be the crucial
factor in winning – or losing – a sale.
What terms of payment should you
stipulate? What payment security should
you set, if any? Reward rarely comes
without some risk: it’s the extent of thatrisk that should determine the level of
security.
With stiff competition, very likely basedin the customer’s country, you’ll wantto make terms as attractive as possible
to the customer. But at the same time
you’ll need to assess the risks inherent inopen account credit term, and maybe add
something to mitigate those risks.

Let’s look at some of the options.
At one end of the scale is total security –cash in advance. But it’s credit that makes
the business world go round and, in acompetitive international market, buyers- particularly business-to-businessbuyers - demand credit. In turn, they may
have to offer credit, perhaps using yourproducts and services to enhance theirown.

A widely used form of security toaccompany credit sales is the letter ofcredit: effectively a bank guaranteeof payment, subject to the correctpresentation of documents by thevendor. There are several kinds so, if you
intend to go down this route, ask yourbank for advice on what kind of letter ofcredit would be suitable.
But remember the pitfalls. Letters ofcredit are dependent on absolutely
consistent documentation. The slightest
variation between invoice, bill of lading
and the letter of credit stipulations thatyou’ve agreed – even something as minor
as a misspelled word - will release thebank from its commitment to pay.
Then there’s the cost: letters of credit
aren’t cheap to set up.
■■ Does the risk justify the means?
■■ Are the bank fees out of proportion
to the contract value and your profit
margin?
■■ And are your competitors offering
more attractive terms?

At the other extreme is open account,with an attractive credit period. But isthat wise with a first contract? Again, it
depends on what you know about thecustomer and what you assess the risk
to be.
You could add a degree of security by
stipulating payment by bill or exchange:a binding agreement on the customer to
pay a fixed amount at a predetermined
date or on demand.
Whatever your terms of payment, theunforeseen can always happen – so if you
are offering open account terms, maybe
you need to protect your cash flow insome other way, and that’s what we’ll
turn to next.

Protect your bottom line
Preparing for the worst
What about selling the invoice - or factoring? You could do soto get some of your invoice value upfront while still offering
credit. On the downside there is a cost involved. The factor may
expect you to place all your invoices with them at a commissionrate, even if you aren’t seeking finance for all of them. And yourcustomer will then be dealing directly with the factor and notwith you when it comes to payment.

But it does much more, and addresses many of the questions
that have arisen throughout this document.

In fact, any such move may send the message to your customerthat you don’t trust them to pay - and that’s not conducive toestablishing a good long-term business relationship.

If you’re entering a new territory, better credit insurers like
Atradius will have people ‘on the ground’ who understand theeconomic, political and legal lie of the land, and can help withyour initial approach to a prospective client.

You could make provision for possible debt in yourbalance sheet. But what you’d then be doing is setting
aside money that could be employed usefully in,say, research and development or financing futurebusiness.
The ultimate safety net for protecting your export sales iscredit insurance. Quite simply, it shifts the risk of non-payment
to the insurer, leaving you free to expand your customer baseand grow your business.

A credible credit insurer like Atradius will vet your prospects
and customers to ensure that their financial status can justify
the amount of credit you plan to afford them – or, if not,recommend a more realistic level of credit.

And, of course, your credit insurance really comes into play if
the worst happens and your customer can’t or won’t pay. You’ll
be reassured that your cash flow and profits won’t suffer andif, like Atradius, your credit insurer has a global network of debt
collection and legal experts, they’ll also seek to negotiate arepayment programme, and wherever possible help the debtor
to recover so that you can retain your working relationship.

Intelligence, intelligence,
intelligence
Understanding your markets and your customers
Someone once said that ‘Knowledge ispower’, and it’s true. Understanding theopportunities and risks of international
trade is vital if your export venture is tobe successful.

The European Commission’s ‘Enterprise
Europe Network’ provides support andinformation for SMEs that want to growtheir business internationally, including
advice on the all-important issue of how
to protect your intellectual property
rights when trading abroad.

And there are many sources of
information to help you, and to keep
you up-to-date with the economic andpolitical trends in export markets.
Chambers of Commerce and specialist
trade associations based in your own
country and in your target markets canprovide you with valuable advice andalso organise trade missions to help
you promote your business abroad andidentify potential customer and business
partners.

Atradius’ websites contain a wealth of
regularly updated intelligence, including
trading briefs on export practice, industry
performance reports and forecasts on awide range of countries, and analysis of
payment trends in key markets.

About Atradius
As a world leader in business-to-business credit management,
Atradius serves companies of all sizes and sectors – from thegrowing one-man business to the multinational corporate.
Our wide range of credit management services – particularly
our credit insurance and international debt collection – helps
businesses grow, develop new markets, improve cash flow andincrease profitability.
Atradius has a long and impressive history in shaping
innovative financial solutions to meet business needs:■

We operate through 160 offices in 50 countries around the
world

■

Our multinational, multilingual team of people number
3,700

■

Our total income is in excess of €1.8 billion■

We provide our clients with access to information on over
240 million companies worldwide■

Our financial strength rating has been affirmed by ratings
agencies A.M. Best as A (excellent) with a stable outlook
and Moody’s as A2, also with a stable outlook.

Our strength lies in our expertise, developed over more than 90
years, in all aspects of financial analysis and risk assessment,
our active presence across five continents, and our global
intelligence network, giving us access to data on 240 million
companies worldwide.
For more information and help protecting your export sales,
visit www.atradius.com

Connect with Atradius

atradius@atradius

atradiusgroupwww.atradius.com
Copyright Atradius 2018

ATR.NV_GRP_001

Atradius
David Ricardostraat 1
PO Box 8982, 1006 JD Amsterdam
The Netherlands