SO YOU WANT TO EXPORT? A question for SMEs

 STARTING EXPORT BUSINESS

INTRODUCTION

Exporting is the legitimate transfer of goods and services, with or without an order, across political boundaries for reasons of profit. From the perspective of the exporter, it is a process that begins from having a business idea to creating an external market. It includes value-addition of some sort, ensuring proper quality standards, packaging, warehousing, documentation, forwarding, shipping and finally the receipt of payment.

To the extent that goods and services move across national boundaries, politics and protectionism, in particular, may become considerations that affect the type and volume of goods that an exporter can move from one country to another.

Export is conventional when the goods or products shipped are the usual, customary and traditional ones like crude oil, cocoa beans, cashew nuts, sesame seeds and gum Arabic. It is non-conventional when they are products or ideas for which Nigeria is not traditionally known. Such products can be:

1.  Physical: like automobiles or gallstones
2.  Intellectual: e.g. franchise or a copyright

iii)     Skills or human capital: like the 25,000 Nigerian Consultant Doctors currently practising in the United States or the thousands of Nigerian sportsmen and women playing all over the world.

1. iv) A process: like the technology or know-how for making a product e.g. paints or automobile.
2. v) A service: like tourism which attracts foreign exchange; or it could be efficient banking services which attract international Dollar deposits.

The opportunity that Nigeria, as an economic unit, offers prospective exporters is immense and mouth-watering.

There is a popular saying that no man is an Island.  This also applies to countries because no country in the world is completely sufficient.  As a result of this, goods and services are moved beyond the boundaries of countries under transactions.  Every country has to generate enough foreign exchange to oil her wheels of production and also balance its external account.  At the same time, she has to also import goods and services not locally available.  These imports may be in form of raw materials or technical know-how.

All these are possible because rapid technological improvement, especially in transportation, has turned the world into a global village.

BECOMING AN EXPORTER

The starting point is to complete the logical registration procedure with the Nigerian Export Promotion Council. After completing this local registration then the real issues in being an exporter come to the fore.  They include, but are not limited to, the following:

1. Unlike local trading, export business calls for attention to minor details and because you cannot jump into a plane to go and meet your buyer, you have to be sure of what you are doing and respect all the details contained in your contract and/or letters of credit.
2. Export business requires a lot of patience. Why a lot of people have failed in export business is because of the desire to sow today and reap today.  To be a successful exporter, you have to execute your plans step-by-step and build up good relationships with your buyers and associates abroad.

1. Willingness to learn is another attribute of a successful exporter. International business is very dynamic for example, like the Uniform Customs and Practice for Documentary Credit is reviewed every ten years.  This law, which governs letter of credit worldwide, needs to be studied amongst others.  Circumstances in importing countries also change regularly.  Therefore to keep abreast of things you must keep learning.
2. There must be specialization in an export company. A situation where one man is the all and all does not augur well for such company.  Somebody has to specialize for example in documentation and stay with it long enough to master it.  It must be emphasized here that all aspects of an export transaction are equally important.  Any segment of a transaction, which is neglected, can lead to losses.
3. To become an exporter you need to be trained to be conversant with what you are going into. Subscribe to commodity magazines and publications that will enlighten you in your field.  Seek training from reputable organizations like the one I run.
4. Most of all before you gain a strong foothold employ the services of a competent consultant to guide you during your teething stage. If you do not, the losses you may incur will be several times more than the cost of a consultant.

Major Issues in Import and Export Business

Wherever you find yourself in the category stated earlier, the solution to your problem will be found in these issues arisen.

TOOLS OF TRADE

To succeed, you must have the interest which is the driving force and you must also be well informed and up-to-date with your information.  You must know the rules and regulations in your country as well as those countries you do business with.  In addition to this, you must understand the international regulations e.g those contained in the Incoterms, Uniform Custom and Practice for Documentary Credits, Uniform Rules for Collection etc.

What all these points at is that you have to do your homework.  If you claim that you do not have time, by the time the transaction crashes, you will have time to count your losses.  Just like the absence of disease is not an indication of good health, the fact that you have been importing does not mean you are doing the right thing because if you are subjected to an ideal environment, the reality will come out.

Selecting the Right Product/Finding Market

Product selection is very important because this determines your success.  Just like it will be difficult to sell hot tea in the north in the dry season or ice water in Jos in harmattan, a good product in the wrong environment will not sell.

This therefore, calls for market research and good market intelligent network.  This might sound too academic.  What I am saying is that you should do enough homework before you choose a product you wish to import or export.  If you are an exporter and you export winter clothes during summer, you will have to wait for the next winter.  If you are an importer you should know what time of the year to import umbrellas.  If you choose the right product and put it in the market at the right time, then you are bound to succeed.

Choosing the right product is not the final process because you have to keep statistics over a period to take decisions.

Maintaining Foreign Presence

Whether you are an exporter or importer, you need a foreign presence one way or the other to compete effectively.  If you look at the foreigners in this country who import, the foreign presence gives them a lot of advantage.  For example, if he notices a gap or scarcity of a product in the market, while you are still trying to open an LC he will call his home office to send the goods immediately.  In three weeks the goods are in Nigeria and before your own arrives in maybe eight weeks or so, the market is already saturated.

Maintaining an office abroad is expensive, but you can do so by having agents or brokers.  Additionally, you have to do a lot of travelling because the truth is that you may not be able to do big time import and export business without the ability to travel occasionally.

However, this is not to scare the small ones because there are ways to solve the problem.  This is where the use of consultants and confirming houses come into play.  We shall discuss this in greater detail later.

Training and Development

One big problem with us is that we always believe we know enough and therefore do not require attending seminars, workshops and short courses.  The complaint is always that these programmes are expensive but as the saying goes, “If you think education is too expensive then try ignorance”.  Some people can bear witness to this and have said that only a statement in a seminar changed their lives.  You may attend a five-day seminar but just one statement will give you the push and I trust you will have that before the end of this article.

There are conditions that can wipe so many companies out of business.  What you don’t know can really hurt you

Using the Services of Competent Consultants

The issue of training and development brings us to the issue of services of consultants.  Unfortunately, the attitude of the average Nigerian to a consultant is that of “what has he done that I have to pay him so much”.  We do not value information.  Training and development fall under the functions of consultants.  People say that there are too many pretenders around and so many circumstantial consultants.  Yes! But the keyword is COMPETENT.  How do you identify one?  The taste of the pudding is in the eating.  A good consultant will give you a money back guarantee because he knows that he will perform.

Whether you are an importer or an exporter, there are several facilities and incentives available.  To take advantage of these facilities within Nigeria and from international agencies eg. BOI SME Loans, facilities etc, you need the guidance of a competent consultant to access these facilities.

There are good basic training programmes a competent consultant will offer newcomers to prepare them for the task ahead.  For example, as a newcomer, you must understand among other things, terms of trade and methods of payment, incoterms, policies, politics, principles of negotiation, basic documentation requirements etc.  Without a good background, you may make mistakes that will expose your ignorance.  For example, an exporter signs a contract with the term of CIF and he submits documents that read freight payable at destination.  This is just a simple example.  But in my 32 years in the export industry, I have seen so many unpardonable errors.

Learn to be Patient (Exporting is a process, not a transaction)

To succeed in import and export business, you need a lot of patience.  A lot of people have failed because of their misplaced desire for immediate gratification.  “In every business, you must pay your dues”.  A few people may succeed the first time but that is not applicable to every businessman.  Import and export business has its ups and downs and you must be consistent.  Stay there, make your mistakes, learn your lessons and push on and on you will get there.  So many people actually have withdrawn a few feet from gold.  One big problem of business in Nigeria is the ‘Bandwagon’ attitude; if you are selling cosmetics for example, and you hear that there is so much margin in tin tomatoes, you abandon your area where you have spent a considerable time and acquired useful experience.  The tendency is to continue jumping from pillar to post and becoming a jack of all trades and master of none.  There is nothing that can be compared to experience in business. 

My advice here is that you should, after careful study, choose a line and for those who have chosen, stick to it because every business is profitable, it’s all in the mind, and a matter of attitude.

Always be on the Right side of the Law

This will either sound strange or outright stupid in a lawless society.  For purposes of emphasis, the import and export we are discussing in this paper is the genuine and legal one and not smuggling.  If you are engaged in illegal business, you are like a thief; many days are for you but one day you will lose all that you thought you had gained.  For example, the government has been sounding it that exporters should use NXP form for their export and that export proceeds must be repatriated. If you fall foul of that, the consequences are heavy, e.g. you could be barred from foreign exchange transactions in Nigeria.

The lesson here is that you may think you are smart and that you have escaped, but one day, the long arm of the law will catch up with you.  Therefore, obey the laws of the land if you wish to prosper in your import/export business.

Honesty

International business is all about confidence and credibility.  The day your associate loses confidence in you, that’s the end.  You show transparent honesty in your dealings. You can make mistakes after all pencils have erasers because everyone makes mistakes but by all means, let it be an honest mistake that can be explained.

That Nigeria is rated among the most corrupt nations in the world is because of a few disgruntled elements and these have impacted negatively on the genuine and honest businessmen around.  Do business in such a way that your associate will say, ‘I have met one good Nigerian that we can return to the good old days.

You must say yes only when you mean so.  You must understand the terms of a contract before you put pen on paper.  You have to understand that a contract is a contract and many a time it carries penalty clauses.  Your buyer who signs a long-term contract with you for the supply of his raw material has factored that into his production line and has at the same time signed contracts with those who buy finished goods from him.  So when you want to default on a contract, remember the chain of consequences, the penalties and the multiplier effects.

The summary is, if you are in international business and you wish to remain there, do not sign contracts when you are not sure you will be able to perform.  You will be better off signing a small quantity and moving up later than taking a big contract and putting a permanent end to a relationship, which could make a difference in your business.

ENTRY POINTS INTO EXPORT TRADE

Export business is a long chain and anybody who is interested can find a point in the chain where he has a competitive edge over others and operate there and make money.

One company is the ultimate exporter but the goods will have to pass from gate to the warehouse before shipping, this applies to commodities. For manufacturers, the manufacturers may not necessarily be the exporter, in fact, for SMEs, it’s more advisable to concentrate on production and leave the export responsibilities to someone else. We shall now look at various possible entry points into the export chain. Because of the complexities of export business. It is important to pass through a learning process to avoid losses.

1. Local Commodity Trading

Exporters of commodities do not get to farm gate to procure their commodities. There are suppliers who do this. These suppliers relate very closely with farmers and are like the go-between.  Under this arrangement, you can also act in various capacities.

1. Agent/Broker

You can act like an agent to exporters simply by locating commodities and supply to the exporter at a designated warehouse.  Most of the time payment is made after delivery.  Funding for this type of business is treated later.

1. Manufacturing

As stated earlier, it’s better for Small and Medium Scale Enterprises who are into manufacturing to concentrate and look for secondary marketing channels like export houses to take responsibilities for their exports.

2. Import/Export Agent

This is a very wide subject and cannot be exhausted.  It simply means looking for foreign goods and local buyers and local goods for foreign buyers.  This is a very lucrative business for a devoted entrepreneur. Because of the depth of this subject, our company has a separate package on how to run an Import/Export Agency: interested readers should contact us.  The beauty of this is that you may not need more than a phone/fax line to start.

3. A Foreign Buying House

This is an advanced form of agency.  To be a confirming house, you receive an order from a foreign company for certain goods, you pass the order to a manufacturer adding your confirmation.   What that means is that you have told the manufacturer to forget the foreign buyer and look to you for payment.  As a Foreign Buying House, on the other hand, you pay manufacturers and take the goods acting as the representative to some foreign companies.  You may not get involved in shipping as your principal may arrange that by sending or nominating a vessel.

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4. Forwarding Agent

A Forwarding Agent is responsible for the loading, supervision, inspection and documentation.  He takes responsibility for seeing that goods get on board a nominated vessel.  The job of the forwarding agents starts as soon as procurement is completed.  This profession has been bastardized but those who are professionals will succeed.

5. Exporter

Exporting is simply trading with customers in another country.  You buy your goods or commodities by whatever means and arrange your shipment through a forwarding agent.  Details of other issue involved in exporting will be discussed elsewhere in this manual.