For a long time, international business was a market that only larger businesses could explore. Today, your small business can make serious headway by selling to customers around the world and grow your business in the process.
Expanding your business internationally gives you more potential customers. And those customers may have different needs than your local clientele. If you’re considering bringing your business abroad, you’ll need to think about how to sell and negotiate deals, logistics, compliance, and more.
How does international business work?
Before getting ready to sell in other countries, it’s important to understand how different things are once you leave the borders of the United States. Here are a couple considerations:
- Subcontractors and their fees: The “do-it-yourself” motto is uniquely American. The moment you leave the U.S. you’ll quickly see that to get anything done – even simple paperwork and banking – you’ll need to hire many levels of service providers. Remember that inside our borders the system is set up for “do-it-yourself,” but outside the U.S. it’s much cheaper and much more reasonable to outsource. Make sure to factor these costs into your pricing.
- Regulations: The U.S. economic system is still largely a free market and considered to have very low regulations. Other countries have many more regulations for businesses, and you’ll need to comply. It would take a long time and a lot of experience to fully understand these regulations, which is why it pays to have an experienced partner in the country to which you’re expanding.
Selling your products and services internationally
The key to selling abroad is localization. Every day, businesses make the mistake of selling their offerings with the same marketing and sales tactics, brand personality, and pricing as they do in the U.S. People in different countries may value and evaluate things differently than your customers in the U.S. You need to find a local partner who can help you better understand the new market and develop a different plan for selling. There are a few levels to selling abroad:
Local distributor
Selling to a distributor in another country is the easiest way to enter a market. Selling to a local distributor completely avoids all the complexities of complying with local laws in that country since the distributor will be responsible for compliance. They also take on the job of localizing the marketing strategy for your brand.
Licensee
A licensee has the right to sell your products and services under your name in a different country. Through this method, your business will have more branding and customer engagement in the local market, all under the management of the licensee.
Joint venture
A joint venture is when you create a new business in the local market that’s partially owned by your business and a local company. By doing this, you’ll have more control of (and more profits from) the local operation.
Wholly owned subsidiary
This is the most engaged option for expanding your business internationally. A wholly owned subsidiary means that your business has opened a subsidiary in the local market. This is usually a final step after years of selling in a local market.
Making deals with foreign buyers
Making a deal with a foreign buyer is very similar to negotiating a purchase with a U.S.-based buyer, but with a few important differences.
First and foremost, you need to handle the context of the agreement. This includes deciding which currency the transaction will take place in, and under which jurisdiction the agreement will have effect. If you’re recording the transaction in a foreign currency, then you’ll also need to also specify what exchange rate to use. Remember, not every country has a market-price exchange rate. As far as jurisdiction, you might need to have two versions of the contract that have effect in the U.S. and in the foreign market.
Second, you’ll need to consider shipping if you’re selling physical products. It’s a good idea to familiarize yourself with shipping terms. What’s most important is deciding when the liability and responsibility of the goods transfers from your business to the buyer.
You’ll also want to set up some insurance for the deal. It’s too risky to send large amounts of valuable goods or deliver valuable services without payment guarantees. To do this, businesses will often get what’s called a “letter of credit.” This has become an important part of doing business internationally. A letter of credit is issued from one bank to another to ensure that payment is sent from the buyer and received by the seller. It locks the buyer’s funds up until they receive their order from the seller, then sends the money to the seller. Other options include a credit guarantee and performance bonds, depending on the type of product or service you’re selling.
The logistics of international business
In some rare cases, small businesses can ship individual orders to retail customers around the world using express shipping services. This can work for valuable goods such as jewelry and fashion. If the products are light, valuable, and don’t have serious customs requirements, then they’re suitable for this shipping method.
However, in most cases your only option for shipping products will be to ship large quantities in bulk to distributors in foreign markets. To do this, you’ll need to hire a freight forwarding company who will arrange for your goods to be shipped in individual containers, or combined with other goods in containers, bound for the same destination. They’ll also handle your business’s customs clearance documentation and any truck-based shipping from your business to the port (and in some cases from the destination port to your client).
How to stay in compliance in foreign markets
As you can imagine, there are many levels of compliance that you’ll need to know before expanding your business internationally. To start, your product and service need to meet certain compliance requirements here in the U.S., even if they’re destined for a foreign market. Then, your products and services need to clear customs, meet product registration requirements, get intellectual property protection, and more to enter the foreign market.
Product registration
Many countries require you to register your products when dealing with goods related to health, consumption, and potentially dangerous substances. Your distributor in the foreign country usually handles these duties. If you’re going at it alone, you should hire a law firm in the foreign country specialized in product registration to handle the procedures.
As part of the product registration process, you’ll need to appropriately label the product in the local language and confirm the information needed on that label. You’ll also need to provide sample products to the regulatory body in that country for testing.
General local law compliance
Make sure that your products and services adhere to other local laws of the market. For example, if you’re delivering any kind of media to a foreign country, it might need to be approved before being published.
Tax compliance
The issue of taxes between countries is complex, and it’s best to have experts advising you in both countries. When you use a distributor in a foreign country, they’ll take care of staying in compliance with foreign taxes.
In general, your products might incur import tariffs, value added tax, and in some cases special taxes (if you’re selling vehicles, luxury items, or alcohol). While a local partner can take care of these requirements for you, it’s important to understand how much they will cost as they can make a big difference in whether your offerings are competitive on the local market.
This can also make a difference in whether you decide to export your products and services from the U.S., or establish the operation in the foreign country. For example, if you sell a service that is subject to a 30% import tariff and 10% value added tax, there might be a big benefit in opening a local subsidiary that directly provides your service and avoids these import tariffs.
Intellectual property
Protecting your brand and intellectual property is a top priority when starting to sell overseas. Did you know that most of the value of U.S. brands comes from their intellectual property? You might be surprised to hear that a patent or trademark issued in the U.S. offers no protection beyond our borders. If you’re planning to sell in a foreign country long-term, it’s important to work with a local lawyer to secure a patent or trademark in that country’s registry.
What U.S. products and services are in demand internationally?
The U.S. is one of the largest exporters in the world, especially in the exporting services. Here are some of the most in-demand categories of goods and services that people around the world want from the U.S.:
- Health products, medical devices, and beauty products. Many people around the world see health products that are made in the U.S. as higher-quality, safer, and more likely to deliver on their claims.
- Software as a Service (SaaS). SaaS from U.S. companies is highly sought after around the world. It’s in demand from business users seeking technology to support their operations, to everyday individuals using social media and streaming video services from the U.S.
- Marketing and design. Branding and marketing services from U.S.-based companies are highly in demand worldwide.
- Agricultural products. Like health products, people around the world view agricultural products from the U.S. as high quality.
- Specialty consumer goods. Well-branded consumer goods are in high demand. This includes craft beverages, niche fashion items, and specialty foods.
Getting help expanding your business internationally
Good news: when you decide to open your business up to exporting, there are many government services available to help you get it done. Federal and state governments want to support all U.S. businesses that are interested in exporting. Here are the resources at your disposal:
- U.S. Commercial Service: Every embassy and every consulate in countries that have a relationship with the U.S. also has a U.S. Commercial Service department. When you’re ready to start selling in another country, these experts can give you extensive help. They can connect you directly with potential customers, perform market studies, and help you understand the laws in that country. They can also help coordinate all the other support services at your disposal.
- United States Department of Agriculture (USDA) Foreign Agriculture Service: This organization researches the local market and supports agricultural product export through a network of offices in consulates around the world.
- U.S. Export Assistance Centers: These centers provide a similar function to the foreign centers but offer a stateside presence to aid your business in export matters.
- Small Business Administration (SBA) Export Assistance: The SBA offers two loans to support exporters. The first is the Export Express and Export Working Capital loans which directly support the costs associated with selling products and services to foreign buyers. The second is the International Trade loan which supports your business as it scales-up operations due to growing international demand for your offerings.
- Export-Import Bank of the U.S.: This is a trade-focused government agency that provides a variety of financing solutions for exporters including trade financing, working capital, and insurance for foreign trade.
Evaluating international business opportunities
Selling overseas can be tricky, and there are risks that exporters face that are different than domestic sellers. When doing your research on all the considerations above, it’s important to weigh these requirements against the potential income you could have from opening up a new market.
Once you’ve gathered the information, prepare a budget that compares these new revenues and the upfront and ongoing costs associated with selling overseas. Ask yourself, how long will it take to recover your initial investment in an exporting operation? Is it worth it considering the projected profits? The answer to these questions will help you to understand whether it’s worthwhile to pursue.
When you’re ready to expand, Pursuit is here to help
Whether you’re expanding your business internationally, or launching a new product line locally, Pursuit can give you the capital boost you need. Explore our 15+ business loans and reach out to our loan experts to see what’s possible.
