10 tips for analyzing a trade deal

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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