Challenges and Benefits of Exporting Internationally

There’s a reason so many companies, small and large, have invested in international exporting and all that comes with it. The global marketplace offers countless opportunities. Of course, there are many companies still on the cusp of expanding their operations. Here are some of the most common challenges businesses face when entering foreign markets, and practical ways to overcome them.

International Product Restrictions and Regulatory Requirements

International shipments sent from the United States are subject to federal export laws and regulations.1 Before choosing a foreign market, companies must understand the shipping restrictions surrounding their products. Export licensing requirements vary by country and are based on U.S. foreign policy and national security concerns. Whether a license is required depends on the type of commodity, how it’s being used, where the commodity is being shipped, and who is involved in the export. Companies must do thorough research to find out if trade is feasible and worthwhile.

Helpful Tip: Though many goods do not require export licenses, it’s important to ensure compliance.2 Contact the federal agency that governs your industry to learn if you need a license. The three agencies that issue licenses are: the Department of Commerce, Bureau of Industry and Security (BIS), the Department of Treasury, Office of Foreign Assets Control (OFAC), and the Department of State.

Political Environment

Beyond laws and regulations, companies must also look at the political climate of a country. Is it stable enough to support successful business operations? Instability can hamper business dealings. Evaluate the environment and whether it can affect your partnerships and consumer purchasing behaviors. Political changes could create new import restrictions, tax controls and labor issues. Consider these details before investing in an international operation.

Helpful Tip: Map out the political and socioeconomic risks in each foreign country you’re looking to ship to. If a transition of power occurs, can the country seize your assets? Find out if and when that’s possible before committing to expansion.

Pricing

The cost of international expansion doesn’t stop at shipping and related surcharges. Taxes and currency values all play a part in exporting for businesses and, more importantly, their bottom line.

Surcharges

Some shipping providers charge additional fees such as fuel, dimensional weight, and extended area surcharges on top of international shipping rates. These added costs affect profit margins and, ultimately, the viability of an international business. Extended-area surcharges and dimensional weight surcharges, in many cases, can exceed the cost of the product. When choosing a provider, take note of the additional charges and how they factor into your strategy. Some providers, like the USPS, offer limited surcharges on international shipping.3

Customs, Duties & Taxes

Every country charges its own customs fees for importing and exporting goods. Seek out competent legal advice to determine whether your customer is responsible for paying local fees, duties and taxes. These costs add up. Companies looking to expand into foreign markets must know just how much financial burden they are putting on customers and explain the fees clearly on the checkout page.4

Currency Values

When doing business abroad, it’s important to know the local currency and its relation to the dollar. Fluctuations in currency value can affect a company’s bottom line. In some cases, companies can protect themselves from drastic changes in price.

Helpful Tip: For those in need of expertise, work with a bank or foreign-exchange specialist to help mitigate your risk.

Reputation Management

Managing consumer relationships abroad is a sensitive but all-important factor in global expansion. Delays, damage and language barriers present their own set of problems.

Delays & Mail Disruptions

Of course, disruptions and shipping delays are an inevitable part of exporting. When dealing with international customers, it’s important to bridge the distance with strong communication. Whether it’s the weather or labor issues slowing down your shipping times, customers always appreciate an update on their shipment.5

Package Loss & Damage

While there’s no way to prevent domestic or international shipments from being lost or destroyed, insurance can help cover the losses. Evaluate multiple quotes from shipping providers and insurance companies. Take into account the level of coverage, claims process, and compatibility with shipping systems before making a final decision.

Language Barriers

Being able to communicate with your international customers and understand their local customs and business practices is paramount. Companies should know all the languages spoken in their chosen market. Besides hiring translators to update print marketing materials and your international website, experts also suggest investing in surveys. Conducting online surveys in your chosen market can help you avoid communication pitfalls.6

Helpful Tip: Create a communication protocol for shipping delays. Be sure your messaging is clear and in the correct language. Avoid jargon to prevent confusion.

Intellectual Property Infringement & Copy Cats

Protecting your intellectual property from theft takes preparation. Every country has its own set of rules and guidelines. Consult with a competent attorney with the appropriate subject matter expertise.

Helpful Tip: If possible, work with a lawyer to draft a legal strategy protecting your intellectual property. Ask your legal counsel about the worth of registering patents, trademarks, and copyrights abroad to defend your company against any possible violations.7

Consumer Fraud

Preventing consumer fraud across international borders requires a bit more effort than it does in the United States. Instances of consumer fraud on cross-border transactions may be higher than domestic transactions. Take into account the different payment methods and regulations, prevalent in your foreign market when screening for dubious shopping behaviors.

Helpful Tip: Make time to regularly monitor purchase activity, credit card information, IP, and email addresses to help detect fraud and manage it.

Returns

For some companies, the price of shipping products back to the U.S. doesn’t make financial sense. The profit margins on their products don’t allow for it. They may choose not to offer returns. Those looking to invest in a great consumer experience can work with return consolidators in their foreign markets. These companies have warehouses ready to service a company’s international returns.8

Helpful Tip: Do your research on return consolidators in your chosen region. Find the company with the best rates for consolidating and shipping parcels back to the U.S.9

Ready to Make Moves?

While there are risks to global expansion, business owners—from small retailers to millionaire entrepreneurs—understand the benefits. Fear of language barriers, regulations and fraud shouldn’t stop your business from evolving. Success stems from preparation. Knowing the challenges ahead of time allows growing companies to meet them head on.

Please note: The content presented in this article is for informational purposes only and not for the purpose of providing legal advice. Please contact your attorney for in-depth advice on any pressing issue or problem.

Interview with USPS’ Ashok Parasuram on International Expansion

After a decades-long career in shipping, including eight years at USPS, Ashok Parasuram knows a thing or two about global expansion. Parasuram, the Manager of International Products and Global Accounts at USPS, has established trade lanes between the United States and Asia, managed freight forwarding at private companies, worked in cargo, the airline industry and more. He’s seen businesses develop global exporting strategies in countries around the world. So we sat down with the industry vet to tap into his experience and learn more about international expansion—from customs to costs.

Some business owners looking to ship internationally wrongly believe that they need exporting licenses. What are some other big exporting misconceptions?

Depending on the nature and value of the commodities being exported, an exporter may or may not require a license. There are several misconceptions about exporting and they usually center on the complexities associated with international trade: specifically, the documentation involved, customs, language, culture, etc. While exporting does require knowledge of a foreign market and the cultural nuances of that country, there are plenty of free or low cost resources that are available to exporters of all sizes. USPS has resources and an international sales team that can assist new and existing exporters with competitive and easy to implement shipping solutions. In addition, the US Department of Commerce (export.gov) and US Census Department (trade.gov) websites contain a lot of important and useful information to assist exporters with any concerns they may have with doing business in a particular country.

How do companies decide which countries to export to? How do customs and taxes fit into that decision?

In many cases, US companies who are new to exporting will typically target English speaking countries. Canada is usually the first country that most companies target as the language, culture and close proximity to the US make that country attractive.

Customs and duty thresholds play a part in the decision making as well. Depending on the country being exported to, the duty free threshold (aka de minimus), the value and nature of the product can impact an exporter’s decision on which country to target. For example, Australia has a duty threshold of $1000 Australian dollars, so almost all ecommerce shipments enter that country duty free. Duty thresholds vary by country so it is important to do one’s research up front.

Is it necessary for these smaller companies to have a large team handling customs?

In my experience, generally not, however, depending on the volume of exports, the company’s international customer base and the nature of the products being shipped, they may need more than one person dedicated to customs. Many of the small and medium-sized companies that I have come across have had one or two people responsible for that aspect of the business. Most of these companies started out small, and eventually grew the size of their export departments in line with the growth of their international business. Depending on volume of exports, the nature of the commodities being shipped, and regulatory environment, some companies hire outside consultants to deal with customs compliance.

Looking to zero in on the biggest issues in global expansion, we tailored the rest of our conversation to the international apparel industry. This area of business boasts success stories from companies small and large. Pulling from his career experience, Parasuram was able to shed light on many facets of global expansion—all through the lens of the apparel industry.

On the Global E-Commerce Apparel Market

First, Parasuram gave a bird’s-eye view of the e-commerce apparel industry, noting the strength of the dollar, and how U.S. exporters function in this economic arena.

Can you describe the current state of the e-commerce apparel market?

Brand name apparel exports to Asia and other emerging areas continue to grow despite the strong dollar. There is a trend among consumers living in countries impacted by the strong dollar to source from countries like China due to the low cost of goods. It’s interesting to note that many apparel importers, who source products offshore, export their products back to the same country where they were manufactured due to the trust that their customers have in US brands. Aside from trust, consumers in some instances purchase from US websites for status reasons.

What types of commodities are sold on the international market?

Depending of course on the country, brand name apparel, home textiles, small electronics, books/media and home furnishings are the types of commodities being exported by companies of all sizes. In general, apparel is the primary product that is being exported.

Where do small and medium-sized apparel businesses export to?

Canada is typically the first market that small and medium-sized businesses target once they enter the international arena. In addition, the EU countries, Japan, Korea, China, Mexico and other emerging markets are common places to export to.

How has the strong dollar affected global apparel exporting?

That depends on the geography and how much the local currency is impacted by the dollar. In the case of Europe, Western Europe with the exception of the UK has been impacted negatively. To combat the weakening of local currencies, consumers in South America and Europe have been purchasing directly from China. Despite that, there is plenty of opportunity for US based apparel exporters.

On International Returns

Understanding the challenges of shipping returns across borders, Parasuram zeroed in on the biggest pain points exporters face.

Let’s take a more granular look at global shipping. When it comes to international returns, do small apparel businesses offer them and, if so, do they charge for them?

It really depends on the commodity and value of the product. In certain parts of the world like Latin America, returns aren’t as big a factor because consumers prefer to resell their online purchase locally. There are markets like Europe where it is very important to offer returns. In that region, not offering a return service can negatively impact an exporter’s business. The cost of returns can vary and vary by retailer as well. In many cases, high-end retailers offer free or low-cost returns options.

What are the greatest operational challenges that apparel companies face when it comes to returns?

In my experience, customs can be challenging, however, if a commodity is exported to a particular country through a shipping company, the return should preferably be handled by that same shipping company to facilitate easy customs clearance.
The cost of returns can be a challenge for many online sellers. Depending on where the return is being exported from, the shipping cost can sometimes outweigh the cost of the product. The USPS is in the process of developing returns solutions that will address the needs of the e-commerce marketplace. For undeliverable and incorrectly addressed mail and parcels, shipments made through Priority Mail Express International® service (PMEI) are returned free of charge.

On Shipping Costs & Expansion Strategies

Finally, Parasuram spoke to the price of shipping and how companies, both small and large, have doubled their exports in the last five years.

Let’s transition the conversation over to another important subject – shipping costs. How do apparel companies deal with the high cost of shipping internationally?

Dealing with shipping costs is not industry specific, but a universal concern. Unlike many shipping companies, USPS does not levy surcharges, so shippers are better equipped to predict and manage their shipping costs. This predictability enables companies to keep the price of their products consistent and more attractive to prospective customers.

Have you seen apparel companies fold the cost of shipping into the price of the product?

In my experience, depending on the value of a brand and product, companies may include the cost of shipping into the product price. This is very typical among high end apparel brands.

Do you think limiting the types of products an apparel company sells internationally can help ease the expansion process?

In my experience, companies who are new to the international market place will test their products and depending on demand, will either reduce or expand the number of lines offered online.