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Export 101: all you ever wanted to know about exporting, but didn't know who to ask.

Earlier this year, New Zealand broke the record for the total number of businesses--one for every nine Kiwis--as the Companies Office showed nearly 500,000 commercial enterprises on its files. So we don't lack the courage to take a jump into the dark.

Why then, when you check the number of those companies exporting is it but a pale fraction?

"It's taking too big a risk."

"Nah, we aren't big enough. Don't think we ever will be."

"You have to be in Auckland/Wellington, etc."

Do any of these sound familiar?

Who better to understand the dynamics of exporting, than Michael Barnett, long-serving CEO of the Auckland Chamber of Commerce?

"The greatest constraint to growth, facing our members, according to annual surveys is, inevitably, 'demand'," he says.

"We know that NZTE provide good support for our top exporters, but it really is time New Zealand looked at how it can convert a greater number of SMEs, with smart products and services, into exporters and take advantage of the free-trade platforms New Zealand governments have negotiated.

"First, you need to understand why you should export. Simply, because exporting should be about growing your business and not being constrained by our small domestic market--and meeting the challenges of international competition.

"Not only will your export activity expand your business, but it will expose you and your staff to new ideas and demands from competitive markets; which is likely to make you more competitive at home."

Other advantages, Barnett believes, will include the potential of bigger margins from producing on a different scale; lower risk from market diversification; and benefits from exposure to international best practice.

"Nevertheless, there will also be challenges, including the costs of entry into a new market, compliance, legal risks, the cost of good advice, and depending on the market, possible political risk."

Against that background, it's timely to get some encouragement and advice from a company which has grasped the nettle.

WashBar is based in Whangerei and celebrated its fourth birthday in October. The Northland regional winner of the ANZ Flying Start Business Plan competition specialises in natural skin and coat care for horses and dogs. It has grown from owners Jules and Pete Smith's home, to an office-warehouse building in town. Its niche products (the business began with a single bar of soap when a friend asked Jules to develop a solution for her dog, which had flea allergy dermatitis) are now sold in pet stores across Australia, Taiwan, Korea, Singapore and Sweden. WashBar products are also available in some 550 stockists throughout New Zealand.

Jules offers the following inspiration to help you get started down the export path:

* It's a cliche but work 'on' the business--planning is so important. If you don't know where you are going, you haven't a clue on how to get there.

* Get good advice. We use a coach. The next step is to get some smart people on an advisory board. Ask other business people what they've done--people are delighted to help.

* Be resilient. You'll have some knocks; all ideas aren't going to work--learn from them.

* Funding--you'll need it to cope with the growth, which comes with success.

* Think expansively--what other opportunities can we create?

Matters of finance

Barry Squires, head of international business at Westpac, has spent many years helping exporters understand and mitigate the financial risks inherent in exporting. Here's how he sums them up for first timers:

1. Market Risk--foreign exchange; interest rate and commodity price volatility. Understanding the impact to your margins of movements in market prices; and how to 'price' to make it easier for customers to pay you.

2. Credit Risk--"New Zealand exporters are selling to a much larger and more volatile market than ever before. We are in the Asian Century." The methods of payment are varied, including:

* Cash in advance--the buyer takes all the risk; the exporter has the goods and the money.

* Documentary Letter of Credit--the exporter substitutes the risk of the buyer paying to the buyer's bank guaranteeing payment, via the L/C. Like any guarantee, an L/C is only as good the issuer.

* Documentary Collections--the exporter delivers the shipping and commercial documents to their bank. "We send these to the buyer's bank, with an instruction to release the documents against either payment (Sight Draft) or acceptance (Term Draft). The exporter has no guarantee the buyer will pay, but has the comfort of the documents being held within the banking system, so the buyer cannot access the goods

* Open Account--the exporter takes all the risk; the buyer has the goods and the money. Open Account payment terms are very common in the developed world. It does require the exporter to be very diligent in assessing the credit risk of their customer and trusting them to pay on the agreed terms.

3. Liquidity Risk--Helping exporters to overlay the financial supply-chain with their physical supply-chain. Ensuring the exporter has sufficient working capital to finance their goods through the cash conversion cycle. "In other words, having working capital available to finance procurement, manufacturing, inventory and debtor collection."

Squires' general advice hinges on the well-worn exporting maxim: 'the sale isn't completed until the payment is in the bank'. "It's as valid today as it ever was," he says.

Matters of insurance

Whenever you talk money, insurance, in its many forms, is never far away.

In New Zealand, QBE Insurance is a business insurance specialist, with professional underwriting and claims teams that have decision-making capability to tailor insurance solutions.

"Businesses are exposed to a wide range of risks every day they trade," says Val Graham, marketing and communications manager at QBE.

"For exporters and importers these risks are magnified due to the distance between trading parties, which can make the recovery of goods and debts difficult and costly when something goes wrong.

"For exporters, there is the risk of non-payment for goods exported." Graham lists some common reasons for payment disputes--including shipments lost in transit; goods delivered in a damaged state; significant transport delays, affecting sale price; and the goods' purchaser unable or unwilling to pay.

"To help mitigate these risks, exporters can secure insurance to protect them and their balance sheets from some of the uncertainties of trade."

Graham says there are four key areas, relevant to trade, where insurance can play a critical role.

a) Marine Cargo insurance protects businesses from the diverse risks products are exposed to during transportation.

b) Product Liability insurance protects businesses against legal liability from third-party injury or property damage.

c) Trade credit insurance insures businesses against bad debts--a necessity when dealing with business partners, particularly in foreign transactions.

d) Business Travel insurance--covers your business for financial disruption caused by a serious accident, illness or delay when travelling to other countries for business.

"Marine cargo insurance is primarily concerned with loss or damage of goods from physical risks during transportation.

"You, as a new exporter, are looking to establish a solid business from the get-go, so marine cargo insurance is a fundamental. While the method of transport may not involve a ship, it is often referred to as 'marine'--a tradition which goes back to the days when the only way to transport goods internationally was by ship.

"It will ideally provide cover from the time the goods are removed from their pallet racking in the warehouse, until they reach their pallet rack in the receiving warehouse. Provided the goods remain in the 'ordinary course of transit', cover is continuous," explains Graham.

"For the cost of an insurance premium, an exporter can largely avoid the business risk involved in the transportation of their goods, as the financial risk is either partially or completely transferred to the insurer."

Graham counsels that the use of comprehensive policy wordings will also assist with alleviating commercial trading risks, such as financial failure of logistics operators, imported goods that reach their destination devalued (due to unforseen delays) or loss of profits caused by damaged or spoiled goods.

"Cargo policies can be complicated for the uninitiated; therefore traders would be well-advised to seek the services of an experienced insurance broker. It is important for traders to obtain advice from a broker who understands the hazards encountered by their particular business, so that they can advise on the best coverage, tailor a plan to suit and find the best rates available."

World-class support

Kiwi SMEs are blessed with world-class support in their export endeavours, through proven NZTE services, as well as the lesser-known New Zealand Export Credit Office (NZECO), attached to The Treasury--mandated to complement the services offered by private banks and trade credit insurers.

NZECO's Rebecca Grace believes "knowing your customer (due diligence) is central to risk management strategies, particularly for companies who are new to exporting, and have not yet developed a trading relationship with their offshore buyer".

"New Zealand's geographic position means that you will need to carefully plan how you intend to choose a trading partner, as you are likely to have 'less visibility' on your overseas counterpart," says Grace.

There are a number of ways that exporters can manage the risk that their overseas buyer will not pay, such as: a deposit, payment upfront, Bill of Lading, Letters of Credit or Trade credit insurance.

"If you choose to take up trade credit insurance, be aware that this type of insurance protects your business from non-payment due to commercial or political reasons. It does not, typically, cover performance risk, such as nonpayment in the event of your product being faulty or the quality of your product being disputed.

"Should your request for trade credit insurance be declined by the private sector (perhaps because of the level of cover you are seeking, or because you only want a small number of buyers insured), NZECO may be able to step in," she says.

"Once we establish your buyer is creditworthy, we can provide up to 95 percent commercial and political cover of your contract amount."

Grace points out that if, after NZECO has undertaken an assessment, they decline to provide you cover, this is a good indicator you should negotiate other payment terms with your buyer (for example, instead of trading on open account, ask for an upfront deposit, payment upfront, Bills of Lading or a Letter of Credit).

Exporters may also be able to use their trade credit insurance policy to access additional funding from their bank, to help with their working capital cycle.

"Before you start to trade offshore, consider what impact delayed payments will have on your business. Will you be able to fund the contract if you don't get paid on time? Pay your suppliers? Pay staff and other costs?

"Companies who have a proven trading history may be eligible for NZECO's Loan Guarantee. The Loan Guarantee is used to access additional funding facilities from your bank, which can be applied to fund the export contract," says Grace.

The Five 'Cs'

Michael Barnett believes taking good advice from the start is essential for exporters. He also offers these tips:

* Clarity of purpose--have a clear vision for your product and how it will compete in an overseas market. Understand the issues of access and have a plan in place allowing you to measure and manage, to ensure success.

* Capability--consider your people (including agents), governance structures, technical ability and processes' ability to perform in a market and keep performing.

* Connections--in most markets it will be 'who you know', not 'what you know'. Develop networks to give you access to good market knowledge and distribution systems. Build a team around you of positive mentors.

* Cash--needed to visit; research; test markets; meet people; create a local network; and go back and do it all again.

* Commitment--exporting to new markets takes time and patience. You will flirt with failure on a rewarding journey to success."

Kevin Kevany is an Auckland-based freelance writer.



1. Preparation is the key when entering new markets. Like any project, it needs to be carefully considered, planned and managed.

2. Plans and budgets should be prepared, objectives need to be set: e.g. what does the business want to achieve?

3. How will it scale up? What impact will this have on the rest of the business (people and resources)?

4. Is the product market ready? What will the business need to do to get it market ready if it isn't--packaging or technical compliance?

5. Who are the competitors; are they competitive and what is their USP?

6. Is your IP covered?

7. What channels) to market do you want to focus on?

8. Who do you need to target?

The most common oversights:

* Underestimating time and resource to develop an export market.

* Focusing on the most accessible markets first or multiple markets at the same time.

* Not taking the time to plan properly.

Selecting an export market:

* Researching the market will help determine whether the company is targeting the right market or not--i.e. that there is a real demand for what you are selling.

* Validation is crucial--don't just go by a friend or family-member's suggestion or jump at the first distributor or contact who shows interest in your product.

* Finding the right partner is crucial. In some countries it can be very complicated, expensive and protracted to extricate yourself from a contract.

* Replicating what the business does in New Zealand may not be the best way to approach other markets.

Source: Carole Wright, NZTE Customer Director, Auckland


New Zealand Post's new online storefront, on Alibaba Group's massive Tmall Global Internet shopping website in China, will allow Kiwi exporters to focus more on strategy, marketing and customer relationships, and less on digital operations and logistics.

According to the company's GM e-commerce and customer solutions, Dr Sohail Choudhry, it is seen as a primary channel for Chinese consumers to source authentic overseas products.

The web store is supported by an end-to-end supply chain to a "market hungry for strong New Zealand retail brands, with a history of good quality and a strong reputation".

"At this early stage food and health, mother and baby, skin care, and gifts and treats are in demand. The range is expected to grow as word spreads in China and volumes increase."

Several New Zealand businesses are already selling on the site, and many more have expressed an interest. Huge promotions are planned for December, Christmas/New Year, and Chinese New Year (February 2015).

Dr Choudhry believes the major benefits include the ability for companies to share costs; New Zealand's reputation for high-quality and authentic products; and the store's association with NZ Post, which is a trusted brand "sought by Chinese consumers".

Participating exporters face strict criteria, including trademark registration, brand authorisation, and other certifications; listing information and marketing plans, materials, vouchers etc. in Chinese; and the capability to meet additional demand.

Products will be stored in New Zealand Post's warehouse in Auckland. Daily, NZ Post will pick, pack and dispatch parcels via its International Air Service to fulfil orders received from China that day.


Too frequently, apparently, exporters fail to properly secure their payment channels, and end up staring blankly when asked about the Incoterm governing their sale. They have failed to match their insurance requirements to the sales process they are undertaking.

"These are all absolutely fundamental matters," explains Matthew Davies, senior associate at ICIB Insurance Brokers, "which every exporter needs to understand, but an extraordinary number simply do not."

'Incoterms' are the basic terms of contract applicable to international sale and purchase agreements, published by the International Chamber of Commerce. Each Incoterm sets out the rights and duties of the parties to the transaction, in relation to the procurement of and payment for: the means of transport; the arranging of export and import clearances; the payment of duty; the point at which delivery is deemed to have been made; whether or not insurance has to be arranged (and by whom); and the point at which the risk of loss or damage passes from the seller to the buyer.

"It is entirely up to the parties as to which Incoterm they select. Specifying the choice clearly on the sales and export documentation is essential, so both parties know their responsibilities in relation to the transaction, and also what costs they will have to bear, in addition to the separate cost of the goods," says Davies.

"What Incoterms do not do is discuss the payment of the purchase price. That is for the parties to work out between themselves. Logically though, the less an exporter knows of the buyer (and their solvency/ payment record), the more sensible it is to try to be paid all or part of the cost, in advance of shipment or through a letter of credit."


The benefits of securing your own insurance rather than relying on your suppliers' or freight forwarders' insurance should not be underestimated.

Purchasing your own tailored insurance in New Zealand gives you more control over your insurance benefits, premiums and insurer. Insurance purchased in New Zealand by New Zealand traders will generally be paid in New Zealand dollars, which helps to alleviate currency fluctuation risks. Also, when your insurer calculates your insurance premium, it will be assessed based on your own previous claims history rather than the claims history of other traders from whom you purchase goods.

A customised annual insurance cover is likely to have greater breadth of cover than that purchased from an overseas trading partner as part of an international sale.

Your own comprehensive Marine Cargo policy can cover you for unforseen costs such as the costs of preparing a claim and expediting expenses, loss of profits, damage or delay of shipment. These benefits are unlikely to be included or specified in a sales invoice or 'Letter of Credit' specification--in the event of loss you are unlikely to be covered for the benefits above and this may compromise the revenue from your traded goods.

Source: QBE
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Author:Kevany, Kevin
Publication:NZ Business
Geographic Code:8NEWZ
Date:Dec 1, 2014
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