I can’t count the times individuals and companies have approached me with import-export deals that are almost impossible to fulfill. People often have “great products” that they want to sell in China or a new emerging market, and ask for introductions to buyers. They want to pay entirely on a success fee and feel that with a simple introduction, everyone can make a lot of money.

If one is in the commodities business (oil, wheat, gluten or bandwidth), the products all are bought and sold the same way. The buyer doesn’t care where the product comes from. But for most other industries, we need to use better tools to analyze the opportunity. In our example, let’s use selling a sports beverage to China.

Here are the top 10 most common mistakes firms and entrepreneurs should avoid:
• The “everybody gets a commission” business model — In other words, no one is getting paid until the deal is fully transacted. We should call it the “ everybody only gets a commission” model.
The problems often are in defining when the transaction has been fulfilled. Is this when the products are shipped, or when they’re paid for? If no one is getting paid until the deal has concluded, the sellers will be in a huge rush … but the buyers may not be.
• No feeling for the time horizon — This is related to the previous point. Most firms underestimate how long it will take to enter a foreign market, even on a straight commission basis.
How long will it really take to get our sports drink shipped, licensed and accepted in China? Will it take weeks, months or years?
• There are too many people in the transaction — This can mean no one knows both the seller and the buyer. A broker network can raise the price artificially, not represent the product correctly and just complicate matters. Our sports drink firm is better off with a maximum of two intermediaries (though only one would be even better).
• No relationship with the manufacturer — This speaks to the “too many people” argument. The manufacturer must buy into the process, and be ready to invest time, product modifications, samples and marketing support. If our sports drink firm tells us it doesn’t want to do anything but sell us product, it’s time to look for an alternative supplier.
• Underestimation of the paperwork involved — In any exporting transaction, there are reams of paperwork to complete. People who do this regularly get paid regardless of the success of the transaction. There are shipping bills, government clearances (on both sides), international payment mechanisms, insurance documents, etc.
• No investment in the market or relationship — Even if our sports drink bottler won’t invest, someone else will have to. Someone will have to fly to China regularly, get to know the corporate buyers and the consumers, and understand what unique challenges China will pose to the firm.
• A complete lack of international payments knowledge — Too many deals have been completed and yet not remunerated. The wrong international payments documents can keep everyone from being compensated. Even typos can stop payments. Do you want to extend credit terms? Do you want to do this transaction entirely through a letter of credit from a bank? There are experts who specialize in this field, and they are worth their price.
• No understanding of the culture — This is often the biggest stumbling block. Without a clear understanding of who your clients are, and how they make buying decisions, the deal is doomed. If your intermediaries really understand this, they should be able to communicate the nuances to you. How would Chinese distributors and consumers decide to buy our sports drink? Why will they buy from us? Do Chinese prefer to pay in advance or require other terms?
• No supporting documents — This is beyond the transaction documents mentioned earlier. Is local testing required? Do the Chinese consider your sports drink to fall into the health care area, as they already have done for similar drinks? Do we need to approve our labeling and our claims about the product? Do we have all of our marketing communications materials localized (website, flyers, signage and email campaigns, to name a few)? Are we attempting to do this deal entirely in English? Is it fair to say the Chinese buyer may require different proof than the American buyer?
• No ongoing support in the market — Whoever is responsible for stimulating demand will own the client. Who will be in charge of that? Are we relinquishing everything to our Chinese contacts? How will the customer be supported? Are we helping establish or train call centers, sales staff and retailers?
While this all may seem unique to international trade, it really isn’t. If our sports drink bottler wanted to sell product in the United States, it would face all of these variables as well.

Bill Decker, managing director of Partners International, which consults with firms on global business and creates partnerships in foreign countries, can be reached at Bill@partnersinternational.com.

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As we travel throughout the world, we come across international business lessons and cultural examples of different behaviors. More often than not, untrained executives head out to do business overseas — won’t seek any training or advice.

When this happens, I often find it best to ask some reality-testing questions. We may not have immediate answers to these inquiries, but they are designed to provoke thought, not be answered immediately. Some examples:
• What does “right now” mean?

When we consider deadlines and time horizons, the manager should realize that terms such as “ASAP” have completely different time frames in other cultures. U.S. business people are unique in the world, in that they are very short-term-focused and have a “time is money” attitude.

• Is this the (for example) Brazilian way of telling me you don’t want to do this?
Here, we say what we mean and mean what we say. However, many cultures are much less direct. Confrontation often is avoided. One may hear how permits aren’t granted, or clients won’t want the offering, or a myriad of other excuses to avoid saying no.

• Do they respect my authority?
On overseas dealings with employees and vendors, executives often are frustrated that they aren’t being listened to or respected. Often in foreign acquisitions or joint ventures, allegiances are with former bosses and clients.

• Who does my foreign employee really work for?
As per the previous question, a firm may have employees overseas but they may have alliances with others, or a conflicting second job.

• Have I heard this correctly?
This is a great way to take pressure off of your foreign colleague (who may be speaking their second or third language). Instead of blaming them for miscommunication, remind yourself that when something doesn’t make sense, it could be your problem, not theirs.

• I know our way of handling this, but what is their way?
Americans in highly trained disciplines — such as law, finance and technology — may see a given problem and its solution. However, foreigners may see very different solutions to those same problems. For example, an American in Turkey with a legal problem may try to find a lawyer. But a Turkish native may instead suggest talking to a bank president or a well-connected business person in order to solve the problem.

• Do the police need evidence?
This probe is meant to scare. But unfortunately it’s an excellent question to ask oneself. What’s to keep you from getting arrested and detained with no explanation and no rights? Something as simple as carrying a camera to the coastline in Taiwan may be illegal.

• What if someone I never met knocks on my door, and says: “Hi. Your firm owes me $11 million.”
Scared yet? It’s hard to believe, but I’ve seen this one happen. You can sign all the contracts you want in many countries, and you still won’t know the story. What debts are owed? What favors are owed? How will you make sure there aren’t vulnerabilities out there? Has a reputation check been done?

• What assumptions might be underlying their actions?
This is particularly important when you hit a cultural wall and can’t figure out certain behaviors. A refrigerator is a great example. If you are granted access to an Israeli house, the host assumes you will open the refrigerator and take something out if you wish. In a Dutch home, the refrigerator is as private as an underwear drawer. In Greece, you won’t ever have the chance to be hungry. What assumptions are the hosts making about their guests?

• How do I know this buyer is a buyer?
The easiest way to fool a competitor is to pose as a buyer. It’s amazing how Americans who can taste a deal will hand over facts, information, intellectual property, client names, blueprints, and even business plans to a would-be customer.

• What’s private and what’s public?
Americans readily discuss things that people in many other cultures would consider private, and thus are offended when they’re mentioned. A private U.S. firm may discuss its total volume of sales (“We did $40 million last year”) where a Swedish firm may discuss the amount of people it employees (“We are now 65 people”).

• How do you know when you are in?
This is the most important question to remember. Too many executives come back from, for example, the Middle East, and tell me how close they are to the locals because they’ve been invited into their homes (which is their version of a handshake). Project managers tell me how easily they manage Indian workers because the programmer in India said, “You are like a sister to me.”

Money aside, here are 10 ways a community can lure foreign companies.

The magic word seems to be “jobs.” Cities, states, districts, office parks and even countries are all vying for firms to move into their communities, set up operations and feed employment. Employment creates a higher tax base, and helps all types of businesses. We see planes full of foreign business people come to the USA to scout locations. Deals are often lost for reasons we can’t understand. How can communities differentiate themselves, attract foreign firms and generate domestic jobs?

Money makes the world go ‘round
Most communities (let’s use this term for all types listed above) use similar sales pitches that focus solely on financial incentives; whether it is paid in subsidies, capital improvements and/or licenses. Sometimes incentives allow firms to save money, such as with tax credits. Occasionally we hear about free sewage and trash removal. We hear about payroll taxes being slashed.

Beyond these obvious financial enticements (which can be compared to others on a spreadsheet) are there other tools that can be used to lure firms to your town? Can we put on our marketing hats and gain advantages over other communities competing for the same business?

Let’s use the example of a Greek manufacturing firm that is interested in putting an operation somewhere in the USA. Money aside, here are 10 more tips:

Have Greek-speaking people available at the community level.
Relocation is tough work. There is a plethora of decisions and documents involved. Having people available who speak Greek will aid in the firm’s ability to make evaluations and comprehend the new society. If communities can’t afford to keep bilingual people on staff, they can hire them by the hour, by the day, or by the deal.

Translate your legal documents.
Have you ever tried to read a Greek commercial lease? The first rule of sales: make it easy to buy. Any community that won’t invest in translation is sending the Greeks the message that they don’t care.

Translate your marketing documents.
If a community is really serious about bringing in Greek business, then do they have a section on this topic, in Greek, on their website? Do they have brochures in Greek? Are they appealing to the Greek buyer, or just substituting “Greek” for “Japanese” in their literature?

Try to understand the Greek business person.
Who is this person? What do they really want? What are his fears and concerns? What is his belief system? What does he regard as truth? Undergo some cross cultural training before pitching this person. Go to formal training, or find a Greek locally and have a Gyro and some Tzatziki.

Try to understand the Greeks beyond business.
Do they go to Church? What do they eat? What types of leisure activities will they want to undertake? How will the children be schooled? Are there any special healthcare concerns? Any Greek immigrant can tell you what she misses from “back home.” Take the time to find this out.

Create a task force of stakeholders.
Americans are notorious for receiving foreign visitors and leaving them alone for long periods of time to watch HBO in their hotel rooms. Hosting Greek visitors is time consuming (especially in our example, as Greek hospitality is overwhelming…Greeks in particular take very good care of their guests). Since we can’t quit our jobs to play tour guide 7 days a week, a rotating welcoming committee will keep the Greeks happy and still allow us to keep our “day job.”

Offer temporary offices
If any community is serious about attracting Greek firms, they should provide a place for them to land. With real estate occupancy low, many landlords may want to take a chance on offering a short term lease for free with an option to extend at market rates once the tenant is comfortable.

Offer temporary housing
Why doesn’t a community that really wants to appeal to companies from Greece offer temporary housing? Give the weary travelers a place to get acclimated. Make them feel at home.

Integrate your new guests.
Should your local Chamber of Commerce have a Greek department? Should the local Better Business Bureau offer a board seat to the incoming Greek company director? Should there be a Greek Club in town? Greek CEOs are moving themselves, their families and hopefully their suppliers to your community. Are you set up to win?

Find people who have lived in Greece and put them on a committee.
If you haven’t been an expatriate, you cannot relate to the experience. So don’t pretend. Find people who have been in that position (hopefully in Greece in our example) and retain them. Keep them available as guides (for the community as well as the Greek guests).

These tips will help your community differentiate itself from the pure “tax” discussions that your competitors use. And they will aid in purely domestic pitches as well.

Use a foreign trade zone to be more competitive

In 2000, Congress passed the Trade and Development Act, creating Foreign Trade Zones (FTZs).
FTZs exist throughout the United States to help domestic manufacturers save money and defer expenses. Think of an FTZ as a small island somewhere in the United States that’s exempt from U.S. Customs duties. An FTZ can be a port, part of a port, acreage in an industrial park, a warehouse or even an office building. Anywhere goods can be imported, stored and then re-exported can be an FTZ.
According to the National Association of Foreign Trade Zones (www.naftz.org), activities that can occur in an FTZ include assembling, packaging, destroying, storing, cleaning, exhibiting, re-packing, distributing, sorting, grading, testing, labeling, repairing, combining with foreign or domestic content, or processing. Hence, almost any manufacturers dealing with imported material can benefit from an FTZ.
An example might be a bicycle manufacturer in Colorado. If the manufacturer is working with any imported components, it can keep those components in an FTZ until ready to use them. The manufacturer also can work on those components while they reside in an FTZ.
This means the bicycle company won’t pay any U.S. duties on these components until they’re ready to exit the FTZ (thus “entering” the U.S. market).
This is a great boost to the company’s cash flow. By saving money on duties, the firm can order more pieces of components and take advantage of bulk pricing. And when properly managed, the finished product doesn’t leave the FTZ until a customer is ready to buy bicycles. If the bicycles are being exported, there is no U.S. Customs duty whatsoever.
If the bicycle firm bought components from Japan, steel from China and tires from Malaysia, and built bicycles for export to the United Kingdom, the firm could import all of these pieces duty-free, build the bicycles and then export them, duty-free.
This alone could make any U.S. manufacturer more competitive.
There are more benefits. If the bicycle company uses imported machinery to assemble bicycles, then a portion of that machinery also won’t incur U.S. duties. The labor and overhead affiliated with the production process (for export) also is exempt from U.S. customs duties.
If the UK client returns bicycles to the FTZ, there’s no duty collected on those returns either.
Many firms don’t export, so let’s take an example with a domestic customer. What if the bicycle company was in Colorado, but its clients were, say, in Pennsylvania?
The Colorado firm could store parts and produce goods in a nearby FTZ. After completion, the finished products could be shipped to an FTZ near the Pennsylvania client. Duty would be collected only when the bicycles leave the Pennsylvania FTZ for delivery to clients.
In many cases, such as with Swedish giant Ikea furniture, the customer bears the duties incurred upon leaving the FTZ. Ikea can offer its clients better pricing, provided the clients take that burden — as many are willing to do.
Most manufacturers can calculate their cost of duties and of capital to estimate their savings. However, few can calculate the costs of the paperwork associated with paying duties and registering goods. By consolidating into an FTZ, much of the paperwork associated with individual imports can be minimized.
FTZ users can engage in a practice known as the “weekly entry procedure.” This procedure allows the FTZ user to file one customs entry per week (as opposed to filing one customs entry per shipment). Picture our bicycle maker getting several hundred boxes per month, from various suppliers.
Only an employer can tell you its costs per employee, per minute. But if we assume a $2-per-employee-minute cost rate, and save hundreds of hours in filing time per month, savings add up quickly.
The FTZ has several other benefits. Savings can occur on personal property tax, harbor fees, spare parts inventory, destruction of obsolete parts and insurance rates on inventory.
Landlords can benefit greatly by activating an FTZ within their real estate. If our bicycle manufacturer has several locations to choose from, it may pick the location that’s already established as an FTZ.
According to the national association, there are more than 250 U.S. communities with zones, and all 50 states have zone projects. The FTZs handle some $400 billion worth of merchandise, and FTZs employ more than 300,000 people and export $19 billion in goods.
So in short, some paperwork and compliance can quickly save a manufacturer money and hassle.
How much money can be saved?
To stay with a bicycle example, Huffy Bicycles of Centerville, Ohio, claims to save more than $1 million a year in duties and paperwork.
If your business spends more than $100,000 in duties and paperwork, an FTZ should be part of your plan.

In our world, the customer is king. Many executives and small business owners who buy internationally feel that since they’re putting all the money into the deal, the vendors must bend to their ways and follow their rules.

The Golden Rule (he who has the gold rules) doesn’t always apply internationally. When purchasing goods and services from abroad, there’s a lot more finesse needed than when dealing with domestic vendors. Poor supplier relationships and uneducated buying techniques can hold your company hostage, disappoint your customers and hijack your budget.

Follow these tips for better buying from overseas:

Avoid single-source purchasing. This in one of the top mistakes I see in international vendor relationships.

If only one firm can make your product or part for you, you may need to re-think your business model. If it can’t be avoided, try to get a stake in the vendor.

Avoid single-country purchasing. Political and trade risks always loom. Governments may change, tax each other unduly or without notice, appoint dictators (or morons) to run trade policy or nationalize your supplier. The best way to protect your firm from this is to have suppliers in multiple countries.

Don’t count on “exclusives.” I can’t begin to count the number of exclusive-rights arrangements that aren’t exclusive. Factory owners can re-label products, have a brother-in-law open another factory or simply change their mind. While you’re spending money suing them, you have no product, no clients and almost no chance of winning overseas.

Plan for circumvention. One vendor who sells bathroom fixtures to a large houseware chain was surprised to see the Chinese manufacturer selling his own product directly to the store. While there are now lawsuits, the lesson learned is to plan for this eventuality.

If the U.S. firm could have added something to the imported product to increase its value, or invested in better branding, merchandising or financing options, it may have been able to control the manufacturer.

Watch the changing terms. Prices are usually quoted for finite amounts of time. If you’re offered ball bearings at $3,000 per ton, is there a time limit for that quote? Do you need to order within the time frame, or pay in full or receive goods? Business proposals are like milk; they have an expiration date.

Hedge currency risks. If you’re purchasing from Japan and paying 100 yen per piece good (and 100 yen equals $1 U.S.), then what happens if the yen gets stronger (say, 50 yen is worth $1 U.S.)? You’ll now need twice as many dollars to buy the same goods, $2 U.S. to buy 100 yen worth of product.

There are professionals who can hedge these risks, purchase options for currency or set up accounts for a buyer in a foreign country so they can take advantage of exchange rates at the best times.

Don’t try to deal with U.S. or international customs without help. Imported goods can sit at the dock for hours, days or months if they don’t clear customs. Customs offices have jargon of their own. The rules are difficult to understand and often change.

If your firm buys bicycles and sells them to stores, you don’t need to be the one dealing with the customs issues. A good customs broker will pay for himself on every order.

Prepare for communication challenges. Douglas Cisneros, of Fusion Global Partners in Denver, negotiates international development agreements throughout the world. He says communication is the No. 1 problem in buying internationally.

“You can’t know the rules without good communication,” he said. So his firm spends a great deal of time and money building and maintaining relationships with his buyers, which foster good communication.

Make no assumptions. This speaks again to communication, but also to culture. Many firms will assume that buying a product implies the seller will manage such tasks as packaging, labeling, shipping, customs clearing and insurance.

Find an international payment specialist. There are experts who can consult with your firm about which international payment mechanism make sense, whether it’s prudent to open a buying office in the vendor’s country, and how to avoid unnecessary taxes and delays when purchasing.

Retain one of these experts early on, before costly mistakes are made.

Don’t forget: A vendor-client relationship is still a relationship. It’s up to both sides to invest in the relationship. Many cultures that offer bargains on products also present deficiencies in being intuitive and creative when solving problems.

By investing time and resources as a buyer, your seller will be more closely married to you and much more likely to warn you about business problems.

Bill Decker, managing director of Partners International, which consults with firms on global business and creates partnerships in foreign countries, can be reached at Bill@partnersinternational.com.

Here’s how to take your business overseas. Discover useful and informative global business tips.

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We’re all aware of stories about how firms get cheated in overseas dealings. Businesses complain of it, and there seems to be little way to enforce a company’s rights in overseas markets. Sometimes it’s foreign companies that cheat us, sometimes foreign governments.

While we may not be able to protect ourselves, here are the most popular ones to avoid:

• Pretending to be a buyer
U.S. firms are likely prey. A foreign firm approaches a “supplier” and starts asking for quotes and proposals. Once the U.S. firm feels a deal is in the works, they start to do everything possible to curry favor with their new “buyer.” The “buyer” isn’t a customer at all, but a potential competitor wanting to learn about trade secrets, intellectual property, sales methodology, pricing, service, etc.

Solution: Start with small pilot projects to generate trust and cash flow.

• Needing to register your intellectual property
Many times a foreign buyer, consultant, or agent needs blueprints, technical specifications, source code, ingredients lists or other sensitive items in order to “register your firm with the government.” Handing over the secret-sauce recipe has happened to more companies than we can count. Also, some foreign governments will reveal your technology to local competitors.

Solution: Don’t register through third parties you don’t know well. Keep a piece of your IP to yourself.

• Putting your firm (or trademark) in their name
Burger King, Ford, Car & Driver magazine and Reader’s Digest have been some of the many companies that have been taken by this scam. Firms work with unknown consultants, and the consultants have been known to register the company name for themselves and blackmail the parent company into buying its own name back.

In other words, a Taiwanese consultant knows that ABC firm is planning to enter Taiwan, so the consultant trademarks the name without ABC firm’s knowledge.

Solution: Register your name in any markets you are thinking about. All countries have embassies in the United States where this can be done.

• Show high interest, then stall

First of all, most overseas negotiations take longer than U.S. negotiations. But many negotiating parties like to drag it out endlessly. They may do this because they are working with a competitor, or they may be one themselves.

Solution: Plan on long time horizons to begin with, and do proper due-diligence on your negotiation counterpart.

• Bad payment documents, holding shipment hostage
International trade is most often financed through financial vehicles such as letters of credit (a guarantee from your bank to theirs to pay if shipments are done properly). Regularly these documents are not perfectly completed, and the banks won’t pay if anything is amiss. (For example, a delivery date is one day late.) The customer then tells the supplier that they will get the letter of credit cleared if the supplier lowers his price. The supplier has to decide whether to take less, or have the ship bring back the merchandise

Solution: Verify your payment documents with an expert. Try to use the same bank on the buyer’s and seller’s side. Or open a bank account near your customer.

• Tying up your international rights
U.S. firms are often ignorant as to how international market entry is performed. They can often fall prey to charlatans who offer them a “no money down” deal to export. They simply ask for the international sales rights to your product. When they don’t perform, you have missed a market opportunity and may be blackmailed into buying the rights back from them.

Solution: Start by handing the rights over to, say, just one country. If the intermediary performs, move on to more countries.

• Losing your brand legally
In some countries, it can become impossible to change distribution. You may be finding a distributor in Mexico, for example. When that distributor doesn’t perform, it can be impossible to get out of the relationship. The distributor can argue to the Mexican court that it has taken all risk, and the U.S. firm is needlessly stopping them from succeeding.

Solution: Slow down. Get to know your distributor.
• Dialing for dollars
Sometimes a distributor or retailer will be selling your product for you in their country, and you will get “dialed for dollars.” The conversation goes something like this: “Give us $200,000 now or your product is off the shelves.” You can’t sue, you don’t want to lose the market, and you don’t want to pay blackmail.

Solution: Plan on a marketing budget in foreign countries. Take control over your marketing efforts so no one can dictate terms. Use a marketing mix and have several methods of distribution and sales
available to you.

There is obviously a pattern here. Slow down, do your homework, make real efforts in foreign markets, and prepare to spend time and money. These scams are common overseas, and you’ll often find them right here in the United States as well.

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