Why are you not exporting?

The statistics are crystal clear. 97% of the world’s consumers live outside of the United States.  Yet, only about 11% of US companies export their products.  Is it possible that we all have plenty of customers and don’t want any more? 

    

Getting started is not especially hard.  Perhaps the easiest place to export to is Canada.  It is close, the language is familiar, and the culture is the same.  Sure, even in Canada, there are some special requirements, primarily the need to include both French and English on product labels.  However, that is a very small price to pay for access to an additional 35 million potential customers.

The first step to get started is to look inside your company and make sure that you are organized to export.  Is your management team committed to the process?  Is the export adventure adequately funded and staffed? 

You also need to do your homework.  Just as you would do if you were entering a new market domestically, market research is the only way to understand the opportunity and risks.  You need to discover who your potential competitors are and what substitute products are already available.  By far, the easiest way to do this is to find a partner who is already intimately familiar with the marketplace.  Someone who speaks the language and knows how to get things done is an invaluable resource. 

Fortunately, promoting US exports is a high priority for the US Government.  The Department of Commerce has Commercial Service Officers in every embassy and most consulates around the world.  Their mission is to help smooth the way for US companies to do business.  They can help with everything from assessing the business climate to helping to identify potential partners, vetting them, and setting up meetings. 

Of course, there are many details that need to be sorted out before you can start exporting.  It’s best to hire an expert who can guide you through the complexities.  Here is a partial list of things you must consider…

·        Currency – will you be doing business in US Dollars or will you need to be taking currency risk by working in the host country’s money?

·        Logistics – how will you get the product to its destination?  How will longer lead times effect your ability to market your products?

·        Product support – will you be able to support your consumers in their native language?  Will your customer service department be working during the appropriate hours for your foreign customers?

·        Intellectual property – what steps do you need to take to protect your rights?

In spite of the challenges, the opportunities are boundless and you should take a close look at why you should be taking advantage of them

Tariffs

Tariffs are taxes that countries impose on imported products.  Tariffs have two major purposes, protectionism and social change.

Most countries participate in the World Trade Organization.  This worldwide independent body acts as mediator between countries to resolve trade disputes and is dedicated to the reduction and removal of all tariffs between member nations.  In spite of these efforts, there is a long way to go.

The basic truth in international business is that countries have competitive advantages over other countries.  These advantages can be in access to raw materials, cheap labor, technological expertise, etc.  As a result of these advantages, often the cost of products produced in those countries can be significantly lower.  Governments use tariffs to ‘level the playing field’ so that products produced internally can compete with lower cost imports.

Governments also use tariffs as leverage to encourage social change.  Most countries are not at all receptive to other governments telling them what to do.  On the other hand, however, they are usually very interested in improving their economies.  They can be persuaded to implement changes in human rights practices, corruption, pollution, etc. in exchange for reduced tariffs and greater access to markets for their exports.

Because countries use tariffs as a tool, they can change frequently as government priorities change.  For the importer, this requires constant vigilance.  Policy changes can profoundly impact profitability and change the competitive balance in the marketplace.

Navigating the complex tariff schedules can be a daunting task.  If you fail to identify the product correctly, you can face penalties and fines, perhaps even loss of import privileges.  Inaccurately identifying the country of origin can have serious consequences.  Even the tiniest differences in the description of the product can cause huge differences in the duties charged.

Let’s say you are an Italian shoe manufacturer and would like to import running shoes to the United States.  In this case the tariff rate is based upon the value of the shoes.  If our shoes are worth more than $6.50 but not over $12.00 then we can use the harmonized tariff schedule and look up code 6402.91.8005 – “Tennis shoes, basketball shoes, gym shoes, training shoes and the like”.  There is no special tariff rate for Italy nor the European Union, so we know we will be charged the default rate of $0.90 / pair + 20% of the value of the shoes.

If those same shoes came from Colombia, the rate would be $0.54 / pair + 12% of the value of the shoes.  And if they were made in Morocco they can be imported duty-free.  To further complicate matters, if the value of the shoes exceed $12.00 they must be imported on code 6402.91.9005 and the tariffs are slightly lower.

This creates the following bizarre scenario.  If the shoes are valued at $12.00 the tariff per pair is $3.30 bringing the cost per pair to $15.30.  If the manufacturer should implement a 2% price increase to $12.24, the tariff per pair is only $2.45, so the cost per pair becomes $14.69!

We advise our clients to get a binding opinion from the US Customs and Border Protection agency before importing a product into the US.  This opinion will provide some clarity in terms of tariffs and eliminate surprises at the border that could adversely affect the bottom line.  To our surprise, we found that the changing rules sometimes confuse the very agency tasked with enforcing them.

Our client is an importer of tahini, a sesame seed based product.  They identified a particular strain of the seed, grown in Ethiopia, which has the taste they sought.  They contracted with a factory in Israel to manufacture the product and began importing tahini duty-free under the free trade agreement between Israel and the United States.  This arrangement allowed them to contain their costs during while introducing their product to the US market.

In July of 2014, we began negotiations with a factory in Ethiopia to manufacture the product closer to the source, thus eliminating the cost of transporting the seeds to Israel.  When we sought guidance from Customs and Border Protection, our first response was that the import, classified under 2008.19.9090 would not qualify for any trade preference and as such would be charged the default tariff of 17.9% (much too high to make it economically feasible).  However, the rules on this were at best confusing. 

In the past, importing tahini from Ethiopia could be imported duty-free since it was covered under the General System of Preferences (GSP).  Unfortunately, the GSP was allowed to expire on July 31, 2013.  Products from Ethiopia also qualify for special duty-free treatment under the African Growth and Opportunity Act (AGOA).  Tahini was not among the products that were included in AGOA.  Careful research uncovered an obscure paragraph in the rules which stated:

“Imports of GSP-eligible imports for beneficiary countries of the African Growth and Opportunity Act (AGOA) will continue to be eligible for duty-free entry, notwithstanding the lapse in GSP authorization, pursuant to the provisions in the statute governing the AGOA program”

We presented this to the agency and received a binding opinion that no tariff would be charged.

Careful research and diligence is the only way to guarantee that your imports will be treated fairly and the proper tariffs applied.

The Bad Guys are after you

In the middle of the 19^th century in the Western United States train robberies became disturbingly common.  Notorious outlaws like Jesse James and Butch Cassidy roamed the West holding up trains for the payroll shipments they were carrying.  This must have been quite problematic for local businesses who were unable to pay their employees because of these bad guys. 

In 2015 we face new challenges to keep our business safe.  Today’s bad guys have given up the black hat in favor of a keyboard and mouse.  As business people, we need to take whatever precautions we can to protect our companies from these very real dangers.

Scammers

The other day, I got the following email from my Dad…

The phone rang at about 8:30 this morning as we finished breakfast.

It was a deep, slightly nasal voice saying that it was our son.  I put Mom on the phone because I do not hear that well.  She did not recognize the voice either, so she asked "Is this E---- or Brian?"  The caller chose E-----.  Things were not going well for him this morning.  He had an accident on the way home from a restaurant.  He broke his nose.  The police smelled alcohol on his breath and now he is in jail.

I was on the Captel phone and mom was on the phone in the kitchen.  I said, sotto voce, to mom that this was a classical scam.   The caller broke the connection at once.

Caller ID was blocked, but the call came from a 12 digit number 573219149117.  Could that have been overseas?

We checked with E-----.  He suggested that Mom should have said "Is this Steve or Harry?"  If the caller had chosen one of those we could have had a shorter, but less interesting, conversation.

We have had two previous scam attempts by e-mail.  In one of them a person pretending to be our friend D-----'s son, H----, said he was stuck in a London hotel.  His credit card was in his luggage and the hotel had impounded the luggage because he couldn't pay his bill.  Could we please send...   E---- pointed out that the e-mail scam was the more popular because the caller did not face the voice recognition hazard.

Scammers can be old or young, they can be male or female, they can approach you on the phone, email, or on the street.  They practice their story and work hard to be very convincing.  Consider that in the above story, the caller explained that his nose was broken.  This provides a plausible explanation why his voice was unfamiliar.

It’s not just my 88 year old parents who are at risk.  Years ago, a scammer caught me in a distracted moment. 

I was in the office early and working on a complex project.  The phone rang and this very believable guy explained that he could save me money on my long distance phone service.  Normally, I just hang up on these guys, but, on this day my mind was elsewhere and I bought into his pitch.  He even explained that he needed to connect me to a third-party verifier but I shouldn’t worry about it.  It was only after I finished the transaction that I realized what had happened and then spent several days unwinding it.

Please remind your staff and your loved ones to remain vigilant.  They should never provide any information to anyone over the phone.  If someone calls and asks for information, no matter how plausible the story, tell them nothing and get off the phone right away.  If the call is legitimate, you should be able to call them back, you look up the number to verify who they are.

Everyone should be aware that banks and the IRS never request personal information by email or phone.   If you get an email that includes a link, even if it came from an apparently legitimate source, it’s best to go to the site from your own saved link or by googling the institution and going to the site from there.

If you think you have been a victim of a scam, it’s important to report it to authorities. 

• Call the police and explain what happened
• Call your bank and see if they can help.  
• The FTC has a website to report scams… go to: ftc.gov/complaint to let them know.

Extortion

Recently, a new form of extortion has emerged that has been surprisingly effective.  Hackers get control of your computer, encrypt all of your files and then threaten to delete them if you don’t pay up. 

Only after you pay will they send you the key to unlock your files.

Organizations as large as the City of Detroit have been caught in this trap (they refused to pay the $800,000 ransom) but the blackmail has proven very effective on individuals and small businesses who reluctantly pay the extortionist fees of $1,000 or less to get back their important files.

After the hacker takes control, it is virtually impossible to get your files back without paying his ransom.  There are, however, things you can do to protect yourself.

 1)      Back up your computer regularly!  I know, I know, everyone knows we should do this but we somehow never really get around to it.  I am as guilty as the next guy in this situation, however, I have, just recently, set up an automatic backup and now have my files saved every day. 

Should my files get held for ransom, I can restore them without consequence.

2)      Don’t follow links in your emails!  I don’t care if you think you know who sent it, following an emailed link is a recipe for disaster. 

3)      Sometimes, when you go to a website, a pop-up will flash a big warning, saying something like “Your computer has been infected with a virus, click here to fix.”  If you click there, you will actually be infecting your computer with the virus you want to remove!  Never click on those links either.

4)      Make sure that your anti-virus software is up to date and that you keep your operating system software updated with all the latest patches.

On this subject, I am afraid those of you that are still holding on tight to Windows XP must let it go.  You are leaving yourself extremely vulnerable by using XP on the internet.  At a minimum, you should be upgrading to Windows 7 and you are probably better off going to 8.1.    The bad news is that your computer and some of your programs may need to be upgraded to support the newer operating systems, but from my perspective, I would rather spend $1000 on new upgraded faster equipment and software than to pay it to an extortionist to unlock your files on your old slow out of date machine.

Pet Peeves - Customer Service Failures

There are some things that really drive me crazy.  Here are just a few that happened recently…

We moved this fall from Long Island to New Jersey.  As part of the process I had Verizon put in a standard old fashioned copper wire phone line.  It is literally just for backup as a result of my experience after Super Storm Sandy.

In the aftermath of the storm two years ago, we had no electricity for 11 days.  Cell phone service was spotty at best, and the only technology that continued to work was that good old reliable copper wired phone.  We kept in touch with our parents, our children, and of course, my clients.

So on October 7^th, the nice Verizon installer arrived to get me hooked up. 

It’s important to note at this point that in this era of deregulation, Verizon’s job is done when they get dial tone at the interface block outside the house.  From there, it’s really up to you. 

I keep remembering the old Green Acres series where their phone was up on top of the pole.  They had to climb the pole whenever they wanted to use the phone!  But I digress…

Verizon will, if asked, run wire inside and install a jack.  However, this service is billed by the hour and charged separately.  In my new home, my office is on the same side of the house as the interface block.  I haven’t actually measured it, but I estimate that the total distance is about 6 feet. 

The installer drilled a hole from the corner of my office, through the vinyl siding and then struggled (for more than 10 minutes) to push the wire through the hole.  Having finally accomplished that, he installed the jack and then proceeded to connect the wire at the interface block.  The result, no dial tone!  After nearly a half hour back and forth the installer finally figured out that he had wired it wrong.  In spite of the fact that I assume he does this for a living, the guy had picked one wire from one pair and another from a different pair.

Two weeks later, I received the bill which included a $175 labor charge.

I called the billing office with what I presumed to be a simple question.  Was the $175 a standard charge (it seemed high for such a relatively simple job) or was I paying for the incompetence of the installer (who behaved like he had never done this before)?

Remarkably, the business office didn’t know the answer and transferred me to the repair office. 

Remarkably, the repair office didn’t know the answer and offered to have the foreman call me back with a breakdown of what the charges were.

Pet Peeve #1:  This will not surprise you, no one called me back!

I don’t think it is unreasonable on my part to understand what I am being billed for.  I was not objecting to the charge so much as looking to understand it.  Even if they needed more time, would it have been such an imposition to simply leave me a voice mail telling me they are working on an answer and setting my expectations on when I will hear from them?

I called Verizon again and the business office connected me to the repair office once again.  The woman in the repair office explained that she did not know why I never got called back.  The only thing she could do was to email the foreman and tell him to call me.  When I bristled at the fruitlessness of that plan, she explained that while she could transfer me to her supervisor, it would be better if the business office supervisor contacted the foreman as they were peers.  I agreed to let her transfer me back to the business office.

Instead, she managed to transfer me to someone in the Finance department.  She would be happy to help me work out a payment plan for my bill but was not equipped to do anything about getting an answer to my question.  She transferred me to someone else who, after hearing my story, arranged a $75 credit to be posted to my account.

Pet Peeve #2: Who’s in charge here?

There seems to be no one at Verizon who has overall responsibility.  It is up to the customer to navigate through their various departments to get any answers.  I started with what I thought was a simple question about what I was being charged for, an answer which I have not yet received, and ended with someone in the business office giving me a credit to keep me from cancelling the service and jumping out the window! 

Every business, especially large behemoths like Verizon needs people whose job it is to resolve customer issues.  The customer should not need to try to figure out who to talk to in order to get his question answered.

Late this week, the foreman finally called me back.  His voice mail message made it pretty clear that he had no feel for what I was calling about, referring to my second call instead of the original question.  I have not returned his call.

Pet Peeve #3:  Just leave a message

The woman in the repair department does not appear to have given the foreman any information about the purpose of my call.  I find that more often than not, people are leaving messages that don’t provide any information.  If the foreman knew why I was calling, he could have left a message on my voice mail telling me how they arrived at the $175 charge.  Instead, he just left a call back number which would require me to call him to tell him what I was calling about.  I bet we could play phone tag for weeks!

What’s your pet peeve?  I am going to start a collection J

Lessons learned from IBM

I confess, I never worked for IBM.  Not that I didn’t want to.  I have submitted applications over the years for various positions with the company, but, never generated any interest on their side. 

I have, however, learned some valuable lessons from the company over the years that are worth sharing here as a reminder to us all.

1)      Appearance is important

IBM has always insisted that its employees dress appropriately.  The mantra in the ‘70s, which I assume still continues today, is that employees should dress like the CEO of the company they are visiting.  For the most part, that meant dark suit, white shirt, tie, patent leather shoes, etc.  One notable exception at that time involved the garment industry.

Back in the ‘60s and ‘70s, New York was the center of a thriving garment industry.  CEOs at those companies typically wore jeans or even shorts to work and IBMers working there were permitted the same.

I think the lesson here is that people respect and will take advise from those who look like them.  You can see that in most corporate board rooms.  Diversity is hard to come by, even in 2014.  Boards continue to be dominated by gray haired white men.

If you want to try an experiment, Google any major corporation and go to the web page that shows the board members.  Cover the titles and see if you can pick out the Chairman or CEO.  Chances are it won’t be easy.

If you want these decision makers to listen to you, it’s best to make sure they feel comfortable with you.

This is a lesson that I tend to forget and need to work harder at.

2)      It isn’t what they ask for

This is a lesson I learned while working at Citibank in the late 1970s.  I took a job in their Foreign Exchange Department managing their back office computer operations.  The bank decided that it was time to upgrade their aging hardware and applications in that area and pulled together a taskforce to find a replacement.

Our team spent countless hours developing a very detailed RFP which specified various performance requirements which we felt were critical in the high volume environment we were in.

For those of you not around in the 1970s or were too young to remember, the computer hardware industry was crowded with players.  In addition to IBM, the competition included Hewlett Packard, Digital Equipment Corporation, Prime, Tandem, NEC, and others.

At the time, those of us in the industry all believed that it was all about the platform.  The applications were secondary and derided as SMOP (simple matter of programming).  I think Bill Gates was one of the first to recognize that we had it backwards.

Anyway, we sent our RFP to every hardware manufacturer on the planet.  The results demonstrated something that I will never forget.  Roughly 80% of the companies chose not to bid on the project.  They could not see any way to meet our requirements with the technology they had available to them.  Everyone else, with the exception of IBM submitted detailed proposals on how they could meet our specifications.

IBMs response was an eye opener to me.  They carefully explained how our specifications were wrong and told us what we should be really asking for.  They essentially rewrote our RFP to match their solution.  In the end, even though their proposal was significantly higher than the competition, they won the bid.

IBM recognized that they did not literally have to meet the requirements as spelled out in the RFP.  Instead, they provided a solution that met the business problem we were trying to address.  And, by the way, matched what they could provide!

It is important to recognize what’s behind the question and not necessarily to respond to the question as asked.  By helping clients to redefine the question, it gets to the root of the problem they are trying to solve.

When dealing with your customers, in whatever industry you are in, keep these IBM lessons in mind.  They will help you to be a better business person.

Crowdfunding

In my business, most of my clients are early stage companies.  They are great entrepreneurs who are learning to be great business people.  Often, these people have expended the bulk of their treasure and their family’s treasure, maxed out their credit cards, etc. investing in research and development and other startup costs.  Now they are finally ready to grow and need help building a scalable operation and finding ways to fund their growth.

The other common thread is passion.  To qualify as a potential client, the business person must have a passion both for their product, of course, and for turning that into a business (two very different things)

These companies can’t access bank financing as they have not been in business long enough nor do they have the necessary 3 years of profits to show.  Without the banks or more family members, the options are limited.

·        Angel Investors. 

These are people who have very deep pockets and are looking for places to invest and get returns greater than they can achieve in traditional financial markets.  The difficulty for the entrepreneur is that she will have to give up significant control and future profits to her “angel” which is often hard to do.

·        Factoring

A factoring company basically loans money against an invoice.  Although expensive, this option gives the business a chance to utilize the money to buy inventory to fill the order.  Particularly if the invoice is large, this is a very doable solution. 

·        Crowdfunding

This is a relatively new option and includes such sites as Kickstarter.com; gofundme.com; indiegogo.com; etc.

I am learning all about Kickstarter.  It’s an interesting concept.  In short, it’s people helping people which is the essence of humanity.  People turn to Kickstarter when they have a great idea and need some help getting it off the ground.  They post a video explaining how much money they are looking for and why it’s needed.  If you buy into the concept, and want to help, you simply make a pledge and complete the transaction on Amazon. 

There are a couple of catches however…

First of all, if the required total is not pledged, no transaction takes place at all.  For example, if you need $1,000 to buy parts to make your prototype and only get pledges of $999 then you get nothing at all.  Obviously, if you get that close on any project, call me and I will chip in $1 to make it go.

The other catch is that you must give people something for their donation.  Perhaps you might send them an autographed napkin or post their name on your website or even send them a sample.  You can imagine that the better the incentive, the more likely it is that someone will contribute.

Rob Thomas raised $5.7 million on Kickstarter in April of 2013 to make a Veronica Mars movie.  People who pledged $10 received the shooting script while the $10,000 backer got a speaking role in the movie.

Of course, the average project on Kickstarter has much more modest objectives.  Just today, John Chartier launched a project to raise $500 to help him figure out how to bake “a really good apple pie”.

Bibby’s Chocolates has launched a Kickstarter project to raise money to fund their huge potential growth.  Founded by chocolate expert Bridget Ludy, Bibby’s combines chocolates and flavored almonds creating a taste sensation that is out of this world.  Bridget is in talks with a large California supermarket chain as well as most of the large Silicon Valley campuses (Apple, Google, etc.) to sell her products.  As a woman owned business, she is being actively solicited by a number of municipalities looking to promote her products in their facilities.

Assuming Bibby’s can meet their project goals, it will take them a long way towards being able to fulfill these orders when they come to fruition.

Check out their Kickstarter video at: 

 https://www.kickstarter.com/projects/bibbyschocolate/bibbys-chocolates-inc-is-growing-and-we-need-your

I believe in Bridget and her products and know she will succeed.  I went on the site and pledged support.  I think it’s a worthwhile investment

Customer Relationships

I am a big believer in customer relationships.  At the end of the day (to use a much overused expression) I want to do business with people that I like and trust.  I preach to my students that they need to get to know their suppliers and customers.  It’s all about sharing information.  If I trust you, I am happy to share my plans and it’s easy to get my concerns addressed.

One example I use frequently is a customer planning a big promotion.  If he gives you sufficient notice, it will be much easier for you to ramp up production then if you suddenly receive an unexpectedly large purchase order.  Similarly, when the unexpected does happen, you want your supplier to care about your needs and help you to respond.  Try getting the attention of a supplier you know only through the internet.

An area that is notably lacking in the implementation of this concept is residential real estate.  My wife and I are in the process of purchasing a new home.  We have found this process difficult and relationships are prevented or discouraged.

Playing Telephone:

Everyone enjoys the kid’s game of ‘telephone’.  If you need a refresher, the point of the game is to find out how garbled a message gets as it travels from one player to the next.  The first player whispers something to the person next to her and that person repeats what he heard in a whisper to the next person.  The last person in the chain then says what she heard out loud.  Inevitably, especially if the chain has more than a couple of players, the message spoken out loud is very different from the one originally whispered!

Real estate transactions seem to be set up to work the same way but there is nothing fun about it.  Instead of being able to speak directly to the seller, my words have to travel through a chain that includes, my lawyer, my real estate agent, the sellers’ real estate agent, the sellers’ lawyer and of course the sellers themselves.  Questions that could be resolved in less than 5 minutes can take hours or even days to answer.  In the case of our transaction, the sellers’ real estate agent nearly scuttled the deal by making up an unfavorable response to our request for a later closing date.

One Time Hit:

Because of the infrequency of the transaction (my parents bought one house 62 years ago) the players fail to recognize the benefits of developing a relationship with their clients.  My lawyer does only real estate law (I think, I never actually met him).  We spoke on the phone once or twice and are conducting our business exclusively via email.  I will meet him only once at the closing and then probably never again. 

I cannot tell you the name of the lawyer I used to buy our first house in 1978 and he (or she) has made no effort to keep in touch.  For our second house, I remember where the lawyer’s office was but can’t recall his name, he has made no effort to keep in touch.  For our third house, we used a very large firm, I know the name of the firm but again not the name of the attorney who helped us.  For our fourth house, we used a close friend, who we know and love, to represent us.  Sadly she is no longer practicing law and referred us to someone else.

By the same token, I can’t remember the name of any real estate broker we used on any transaction, with the exception of the homes we sold and purchased in 2008.  I remember him only because he was also our painter and we had developed a relationship.  He let the relationship drop and I never even considered using him for this current transaction.

Moral:

The message should be clear.  These people, by failing to make the effort to develop and maintain a relationship with me, did not get my business the next time around.  Stay in touch with your customers and stay close with them.  Even if there is no business today, why would you let someone else supply them the next time?

Getting to the source of your supply chain, (in my case the sellers), can make a world of difference in making sure the transaction is completed smoothly.