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Export Guide, Export Transaction, Pricing, Packaging, Sale Terms, Quotations, Contracts, Finance

Posted at: International Trade Publications | Posted on: Wednesday 26 September 2007 2:28 am | Poster last visit: Friday 12 August 2022 |
The Export Transaction

Getting Your Product Export Ready

To successfully market a product in a foreign country, the manufacturer must

incorporate industry standards, correct labeling, consumer preferences, and other

consumer-driven considerations into a marketing strategy. In many cases, only a minor

product alteration may be required to successfully gain appeal; in others, technical

modifications must be made to incorporate standards of the importing country.

Consideration also should be given to the product name (i.e., it may inadvertently have

a negative connotation in the local language), cultural and/or religious connotations,

packaging and, most importantly, compliance with standards (i.e., different electrical

power systems, metric dimensions and local product regulations). The EC mark,

for instance, is required for products entering European Union countries; stringent

labeling standards apply to food, supplements and cosmetics in most countries.

Another consideration when planning a market strategy is understanding the

ramifications of ISO 9000 (www.iso.ch/iso/en/ISOOnline.frontpage), essentially

a quality control/management system. When competing for business in foreign

countries, particularly with regard to procurement bidding, it may be a requirement

to be ISO certified. In many instances, subcontractors supplying parts or services for

major overseas contractors are required by the terms of government contracts to be

ISO 9000 qualified.

The purpose of the ISO 9000 series is to document, implement and demonstrate

the quality assurance systems used by companies that supply goods and services

internationally. ISO standards are required to be reviewed every five years. Additional

information on these revisions can be obtained from the American Society for Quality

(ASQ) at www.asq.org. For local help in quality control and manufacturing efficiency

issues, contact the Manufacturing Extension Partnership, a joint effort of the National

Institute for Standards and Technology (NIST) and State governments.

ISO Certification

There are three ways for a manufacturer to prove compliance with the requirements of

one of the ISO 9000 standards. Manufacturers may evaluate their quality system and

self-declare the conformance of the system to one of the ISO 9000 quality systems.

Second-party evaluations occur when the buyer requires and conducts quality system

evaluations of suppliers. These evaluations are mandatory only for companies wishing

to become suppliers to that buyer. Third-party quality systems and evaluations and

registrations may be voluntary or mandatory and are conducted by persons or

organizations independent of both the supplier and the buyer. Interpretations of an

ISO 9000 standard may not be consistent from one registrar to another.

Since the supplier’s quality system is registered, not an individual product, the

quality system registration does not imply product conformity to any given set of

requirements. The demand for ISO 9000 registration in Europe and elsewhere appears

to be coming primarily from the marketplace as “a contractual rather than a regulatory

requirement.” Additional information on U.S., foreign and international voluntary

standards and government regulations and rules of certification for nonagricultural

products is available from the National Center for Standards and Certification

Information (NCSCI), which is part of the National Institute of Standards and

Technology (NIST).

National Institute of Standards and Technology (NIST)

E-mail: inquiries@nist.gov


Global Standards and Information Group

National Institute of Standards and Technology (NCSCI)

E-mail: ncsci@nist.gov


Pricing products for maximum competitiveness in foreign markets can be a challenge.

Pricing that works in one market may be totally noncompetitive in another. Although

there is no one formula, there are a number of strategic and technical considerations

you can make to determine an appropriate pricing structure. At this point a number of

questions need to be answered. For example: Are you entering the market with a new or

unique product? Are you selling excess or obsolete products? Can your product demand

a higher price because of brand recognition or superior quality? Are you willing to

reduce profits to gain market share for long-term growth? Your pricing strategy will be

affected by your company’s business goals.

As part of your market research, obtain as much information as possible on local

market prices. Pricing information can be obtained in several ways: a) from

overseas distributors and agents of similar products of equivalent quality; b)

whenever feasible, traveling to the country where your products will be sold to

gather pricing information; and, c) through the U.S. Commercial Service which can

assist in determining appropriate prices through its Customized Sales Survey. For

more information, go to www.export.gov/tic. Check also with international business

advisors (at the SBDC or State economic development) on assistance in developing

your products’ “landed cost” as a basis for developing price quotations.

Methods of International Pricing

The cost-plus method of international pricing is based on your domestic costs, plus

additional exporting costs associated with international sales and promotion, product

modification, etc. (Remember, costs associated with insuring or delivery are usually

“pass-through costs” that do not have a mark-up component in arriving at a selling

price.) Any costs not applicable, such as domestic marketing costs, are subtracted

from the overall cost prior to mark-up to arrive at your selling price. The cost-plus

method allows you to maintain your domestic profit margin percentage, and thus to

set a suitable price. This method does not, however, take into account local market


Different marketing costs and/or modifications to the product could change the cost basis

dramatically, making the product either more or less costly for export. As a result, using

the “marginal-cost” method provides a more realistic means of determining true cost of

producing your product for export. To use the marginal-cost method, first determine the

fixed costs, if any, of producing an additional unit for export. Fixed costs are defined as

costs that occur whether or not the company is selling anything, i.e., mortgage payments

on land or buildings. If a company is operating at a profit, and additional assets are not

being employed, fixed costs have been covered. At this point, any additional costs of

producing products are termed variable costs.

There may be instances where additional assets are not needed to meet international sales

requirements. In this case, the company would generally only be concerned with variable

costs, operating expenses, taxes and net profit in determining the product sales price.

A company may have to purchase new machinery to meet international sales demands.

Obviously, there would be a fixed cost component to international production costs

(fixed costs would consist of amortized payment of the equipment). In this case, a fixed

cost component must be included in the above example to reach the product sales price.

International expenses may include the following:


Local regulations and customs may require special labeling, translated instructions or

different packaging to appeal to local tastes. The selected mode of distribution may also

require a particular kind of packaging.

Foreign Market Research

Fees may be associated with specialized research and other educational services used to

obtain market information.

Advertising and Marketing

Firms selling directly into new markets will most likely be responsible for the entire

promotional effort, and may incur high initial outlays to establish product recognition in

the new market. If an agent, distributor or trading company is employed, they typically

can handle advertising and marketing as part of their contract.

Translation, Consulting and Legal Fees

Product instructions, sales agreements and other documentation generally will need to be

translated into the local language. Be aware that idioms and words can differ greatly in

regions using the same language. Expert translation of product labeling and instructions

is essential. Although many sales agreements are standard, it is advisable to have legal

counsel to review all binding documents.

Foreign Agent/Distributor Product Information and Training

Agents and distributors may require special training to effectively market and service

your products. This is true even if the agent sells similar products. Training will not

only enable the agent to better represent your company’s interests, but gain a better

understanding of your product.

After-Sales Service Costs

Product warranties and service contracts will enhance your product’s image. An

appropriate after-sales service guarantee can support your sales effort in the new market.

Do not, however, promise service or warranties based on U.S. standards that you cannot

deliver. After taking these expenses into account, insurance, freight, duties and a profit

margin can be added to arrive at a customer price. Depending on the country, currency

fluctuations can significantly affect profit margin and the final price. New-to-export

companies should price products in U.S. dollars and request payment in dollars.

High-Price Option

This approach may be appropriate if your company is selling a new product, or if

you are attempting to position your product or service at the upper-end of the market.

Selecting this option may attract competition and limit the market for your product while

producing large profit margins.

Moderate-Price Option

This is a lower risk approach as compared with the high- or low-price option. Here

you should be able to match competitors’ prices, build a market position and produce

reasonable profit margins.

Low-Price Option

This approach may be relevant if you are trying to reduce inventory, want to quickly

establish a market presence, or do not have a long-term commitment to the market. You

will, no doubt, impede competition but also produce low profit margins. Overall, no

single strategy is ideal for every company. As a result, companies often draw upon a mix

of options for each market or product.

Setting Terms of Sale

Price Quotations

The pro forma invoice is the most commonly used document to give price quotations to

potential customers. If both buyer and seller are in agreement, it is usually considered a

sales binding sales contract, although prices may change prior to final sale. To prepare

the invoice, you should give a detailed description of the product and an itemized list of

fees and terms of sale. Prices should be quoted in U.S. dollars to reduce foreign exchange

risks. The invoice also should indicate the period during which the price quotation is

valid, the terms and method of payment, and delivery terms.

You should be familiar with the common terms of sale used in international trade before

preparing your pro-forma invoice. International Commercial Terms (INCOTERMS) are

universally recognized in export and import contracts. These terms refer to the rights and

obligations of each party (i.e., who pays what costs, when title to goods is transferred and

where the goods should be delivered). A complete list of INCOTERMS published in the

book Incoterms for America by Frank Reynolds can be obtained from the International

Chamber of Commerce’s (ICC) Bookstore, (www.iccbookusa.com/paag.cfm) and

should be a permanent part of your business library.

Negotiating Sales and Distributor Agreements

Sales Contracts

Knowing how to include INCOTERMS in a contract is important, but it represents only

one aspect of the sales agreement. Legal rights and obligations of the parties should

be spelled out in a single document, which can be incorporated into the final invoice.

Frequently, the terms and conditions are contained on the back of the invoice.

Some of the terms and conditions necessary in a written sales agreement include the


Delivery Terms—Risk of Loss

A force majeure clause is standard in most agreements. This clause excuses the

exporter from responsibility where a default in performance is caused by events

beyond the exporter’s control, such as war, acts of God or labor problems.

Payment and Finance Terms

In addition to defining the terms of payment, provisions should be included for

late payments, partial payments and remedies for non-payment. When discussing

how to get paid, include the cost to your buyer of your preferred method of

payment as one of your considerations. If you insist on wire transfer and the cost

of this service is high in the export country, you are adding to the cost of your

product. Optimize the negotiation process by offering to share fees, if the speed

of receiving payment is important for your cash flow. Consider risk insurance

protection for the for foreign receivable, if your competition is offering open

account terms. See also Chapter 6, Export Financing.


Sales contracts generally describe the goods and their qualities, workmanship

and durability. In some cases, the exporter is obligated by the law in the country

of import to provide quality and warranty information. Thus, the importer

will require the exporter to warrant that the goods meet certain standards of

construction and performance.

Acceptance of Goods

Frequently, the importer will insist upon the right to inspect the goods upon

delivery. If found defective, the importer can reject them and refuse to pay.

However, the importer is still liable for country-of-importation duties and other

taxes. The export documents should reflect any such requirements. It is advisable

to stipulate in the contract that the terms for buyer acceptance and preferences

for any inspections will be completed by a qualified third party, preferably before


Intellectual Property Rights

Protection of the exporter’s patents, trademarks or copyrights should be assured

in the agreement. However, protection under the laws of the foreign country

is not automatic. You should not assume that your product is protected. Please

consult with an attorney on the advisability and procedures required to properly

register your intellectual property in specific countries.


The obligations of the parties for payment of taxes other than customs duties

should be defined in writing.

Dispute Settlement

It is advisable to specify how and where any disputes will be resolved, as well as

which nation’s law would be applied. Bear in mind that different countries have

varying arbitration laws and systems, which may apply.

Agent and Distributor Agreements

If you choose to use an agent or distributor, it will be necessary to develop a formal

contractual agreement. Agent and distributor agreements spell out in greater detail the

issues noted above and define other aspects of the relationship between the parties to the

agreement. In the contract it is important to:

1. Specify the goods and/or services covered.

2. Describe the agent or distributor’s sales territory, and whether they will have

exclusive or non-exclusive sales rights.

3. Set the length of the term for which the agreement is applicable and agree

upon specified minimum sales volumes and objectives.

4. Outline protection of intellectual property.

5. Describe other types of obligations imposed on the parties, violations of

which would justify termination of the contract.

6. List specific intellectual property rights granted to the agent or distributor.

When negotiating and drafting contractual agreements, it is recommended that you

consult an attorney with experience in international trade and laws of the specified

country. Your local bar association may provide a referral service. Under agreement with

the Federal Bar Association and the U.S. Department of Commerce, the Small Business

Administration sponsors the Export Legal Assistance Network (ELAN). ELAN is a

group of attorneys throughout the United States who specialize in international trade.

Your local Commercial Service office, international SBDC or U.S. Export Assistance

Center (USEAC) can assist in locating an ELAN attorney who will provide a free, initial

legal consultation to discuss your export-related questions.

Terms for financing export sales should be discussed during contract negotiations. While

the U.S. seller will want to be paid as soon as possible, the foreign buyer will want to

delay payment as long as possible, preferably until after the goods are resold. These two

conflicting objectives will factor into any negotiations on export financing. In addition to

reaching a compromise on the method of payment, the U.S. exporter must also be able

to offer the foreign buyer favorable financing terms—otherwise the sale could be lost to

a foreign competitor with an equivalent product but better payment terms.

Source: Breaking into the Trade Game; A U.S. Small Business Administration International Publication

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