Practical export tips from Colin Crabbe

Colin Crabbe, the International Trade Manager with BGI, is a highly experienced exporter with over two decades of first-hand familiarity in diverse markets in Africa, the Middle East and the Far East.

Drawing on his own experiences, Colin is a regular contributor to this website with practical articles to assist the less-experienced exporter. Here are three more of his commonsense nuggets of wisdom - past contributions can be found at Archived Tips.

The acid test

One theme keeps coming up time and time again when I work with experienced exporters in our Go Global workshops. You’ve targeted your new market, and you’re making headway with business development – so now’s the time for the ultimate reality check!

Before you think about setting up agency agreements or distribution networks, ask yourself – “do I know exactly who’s going to pay me”. I know it sounds elementary, but, before you even think of going any further down the line, it’s a question to which you must know the answer. Is it an agent, a distributor, the person issuing the tender, a local subsidiary of your customer, or what?

The experienced exporters I’ve been working with all agreed that, if you don’t know the answer, just walk away from any business on the table until such time as you do have that vital information – it’s just too risky otherwise. You have to know that you are going to get paid, by whom, how you can get your money out of the country, and how much is going to come off in local taxes and other deductions.

Fortunately, there are a number of places where you can find out what the local climate is like in terms of payment. Through BGI and SDI, for example, you can contact commercial officers at the local British embassy who can keep you informed about average payment terms, currency fluctuations and the local tax regimes.

And don’t forget about the dangers of currency movement, which can all too easily wipe out your profit on a contract, especially if payment is protracted. In my experience, few SMEs want to get involved in currency “hedging”, so you will probably be getting paid in US dollars. You may not have sufficient cash flow to buy dollars forwards, and, although you might try to insert clauses into your contract to protect you from currency movement, in practice they may be very difficult to invoke – your customer may just prefer to put the job back out to tender again.

So there are some real challenges there which can only be faced with confidence once you make absolutely sure that you know every last detail about how and when you are going to get paid.

When to formalise the agreement….

This is another area where experienced exporters tend to exercise caution before rushing into a watertight contract with a new agent/distributor. Everyone can see the benefits of having a honeymoon period so you can get to know each other, and see how well you get to know each other, but in practice you often don’t have that luxury. Your agent, for example, may find you an early piece of work which you can’t afford to put off.

In which case, as soon as you make your first contact with a potential agent, start checking them up as thoroughly as possible. Get references and make sure you check them out all out thoroughly; carry out intensive due diligence with people like SDI’s in-market personnel – that’s what they’re there for. These people should be able to find out for you what your agent’s standing is like in the local market, what their creditworthiness is, who else they deal with, and other key information.

Above all, if you haven’t had enough time to check up every last detail, try to avoid entering into any sort of long-term commitment. Keep your temporary agreement as informal and as open as possible (if need be, only for an initial contract) – if your agent is reputable, he ought to have no problem with you crawling all over his references. Good agents are well aware of the problems facing exporters who are new to a territory, and will invariably respect your need for caution.

…and when to end it!

And this is another regular problem which inexperienced exporters habitually encounter. Although it may seem like a negative perspective, I tend to take the view that, somewhere down the line, you will have problems with your agent/distributor, and something will go wrong. If it never happens, and you make pots of money from day one, than that’s great, but I think it’s wise to plan for disappointment.

Assuming that he really isn’t performing, then the question is – what can you do about it? This is where it is absolutely essential to have your distribution agreement worded so that you have a formal exit route from the contract.

The best way to achieve this is by inserting a performance clause into the agreement. Not every agent is comfortable with this, so to get him to accept it you may have to give something away from your own end.

So, for example, you may have to commit to giving him adequate marketing resources – sales training, supply of literature, in-market support visits – but in return you are looking for him to meet a minimum sales target of x units during the defined sales period.

Or your commitment might extend to including a copy of your marketing plan within the agreement. With something like that in place, you have a good chance of being able to exit the agreement in the event of unsatisfactory performance.

There is nothing worse than feeling you are locked into a long-term contract with an under-performer, and this is the best way, in my opinion, to avoid that scenario.

Sometimes, for example, a really good agent simply loses his best people and can’t continue to deliver the goods – many overseas markets are populated by highly transient sales personnel who move around on a regular basis.