This is a really good question I want to really consider as you start out on your internationalisation journey, to make sure that in the long term you are able to gain the benefits of trading overseas and the rewards that it can bring.
So my top three aspects to consider when looking at your costings for export. First of all, consider your product and the target market in which you’re selling into. Are there any modifications to the product in terms of ingredients, in terms of the packaging that you may need to make in order to make it possible and viable to sell into that market? And also obviously the impact that will have on your cost base.
So for example, are you needing to change any of the ingredients? Is the packaging ready and compliant with the market? Are you going to have to over label, create stickers, which obviously cost time and money in the target market in order for the product to allow to be imported.
Are there considerations with the outer packaging that you may need to do that is specific to the market for customs purposes? Is the material in which you are normally providing your product robust and appropriate for the target market? Again any modifications you may need to make will obviously add cost and so you should bear that in mind.
Second aspect to consider is with regards to the logistics. In terms of not just the transportation itself, which obviously will have a cost involved which should be factored in, and that’s where something around your Incoterms really does come into play and is important to consider as part of your sales process.
Who is responsible for the transportation and how that’s factored in to your pricing is important to think about. So do bear that in mind and consider how far you as a seller are willing to offer incorporating logistics into what you’re offering to a customer or potentially not. But be clear on that and make sure that the customer knows that also.
Secondly with regards to not just the transportation of goods, but within that, there’s also often several documents that need to accompany the shipment. And some of those will incur you a cost at every consignment, so for example documents such as Certificates or origin and Health certificates, they need to be requested through local organisations like the Chambers of Commerce, and potentially also need to be legalised by some of the Embassies around the world. Again, these incur extra costs for you. So it’d be a really good idea, particularly once you have a target market and you know where you are selling, to consider what those costs may be upfront and work that and decide how you put that into your costing model.
The final area to think about is the payment itself. In terms of, for example, which currency you’re going to be trading in. Obviously, if you’re selling in your home domestic currency that can be easier to manage. However if you are trading elsewhere into other currencies, do bear in mind obviously the fluctuations that can happen and the volatility of exchange rates, plus the time in which you quoted and the time that you may end up actually receiving the money in a different currency will also have a potential impact on your bottom line, and being aware of this and hedging for this is advisable. Another aspect as well is with regards to the payment terms itself. It may be if pro forma and payment upfront is not a viable option, other options such as Letters of Credit, or other payment terms in credit that may be extended, again, can be offered, but do bear in mind that there are additional costs to those that again should be factored in to your decisions around exporting and the customers and where you’re exporting to.
Thanks for listening, I hope you found this useful.