in the exchange rate is always assumed by the individual who’s either making or receiving the payment in a foreign currency. In other words, if you don’t want any risks as an exporter, invoice your client in U.S. dollars; as an importer, always request that the supplier quote you in U.S. dollars. For much more information on currencies and how currency trading works, check out Currency Trading For Dummies, 3rd Edition, by Kathleen Brooks and Brian Dolan (Wiley).
Also check out www.fita.org/converter.html, which offers daily exchange rate quotations between more than 120 currencies. The rates, which are provided by Reuters, are updated at about 5:00 p.m. Eastern Time (U.S.).
Chapter 2
Figuring Out Your Role in the Import/Export Business
In This Chapter
▶ Looking at why you want to get involved in import/export
▶ Explaining trade agreements and their impact on business
▶ Going global with your small business
▶ Determining how much money you need to invest
▶ Figuring out how much money you can expect to earn
People get involved in international trade for a variety of reasons:
✔ Foreign goods are everywhere. Next time you’re in a store, take a look around: Almost everything is made overseas. Looking overseas can help your business be more competitive.
✔ The U.S. dollar is weak. The value of the dollar is (as of this writing) at a very low point, and a weak dollar is positive for exports because it makes U.S. products cheaper in foreign markets.
✔ The U.S. dollar is strong. The dollar has been very strong in the past, and it’ll likely be strong again in the future. When the dollar is strong, that’s a plus for imports because it makes foreign products cheaper in the United States.
✔ What happens in one part of the world has an immediate impact on the rest of the world. Technological advancements, advancing economies, and trade agreements have combined to make this the case.
In this chapter, you identify why you’re interested in import/export, see what you can get out of adding import/export to your business, and determine the costs – and rewards! – that you can expect.
The Benefits of Import/Export
Existing businesses go abroad for one or both of the following reasons:
✔ To increase profits and sales
✔ To protect themselves from being eroded by competition
Some businesses make their initial entry into a foreign market by exporting. Then they set up foreign sales companies. Finally, if the sales volume warrants it, they establish foreign production facilities.
Other businesses decide to get involved in importing to take advantage of lower manufacturing costs, to protect themselves from lower-priced imports being sold in the U.S., and to remain competitive with other companies that do business in the U.S.
In this section, I cover the benefits of going global with your existing business.
Increasing sales and profits
Managers are under constant pressure to increase sales and make their companies more profitable. After a while, most businesses reach a point where they can only sell so much – the market is saturated with the product. When a business reaches this point, it needs to look for new people to sell its products to. Businesses often begin looking for ways to sell their products overseas.
You can earn greater profits either by generating additional revenues or by decreasing your cost of goods sold. Exporting gives you the opportunity to increase sales and generate additional revenues, and importing gives you access to low-cost sources of supply.
Taking advantage of expanding international economies
New foreign markets are appearing and, in some instances, are growing at a faster rate than U.S. markets. Today, U.S. businesses are seeing increases in exports to developing countries, especially in Latin America, Central Europe, Eastern Europe, the Middle East, and Asia. Companies also go overseas to obtain the lower manufacturing costs available in nations with expanding economies.
✔ They offer a favorable business climate.
✔ Regulations to do business there are not insurmountable.
✔ They have an established transportation infrastructure.
✔ They’ve earned foreign exchange (money) by exporting their products. As countries grow and export more goods to the U.S., they have more money that they can use to purchase goods from the U.S.
Making use of trade agreements
Trade agreements involve a small group of countries getting together to establish a free-trade area among themselves while maintaining trade restrictions with all other nations. These agreements provide improved market access for consumer, industrial, and agricultural products from the U.S.
Trade agreements also can help your business enter and compete more easily in the global marketplace. They help level the international playing field and encourage foreign governments to adopt open rule-making procedures as well as laws and regulations that don’t discriminate. Free-trade agreements (FTAs) help strengthen business climates by eliminating or reducing tariff rates, improving intellectual property regulations, opening government procurement opportunities, and easing investment rules.
These agreements provide the following benefits to small and medium-size exporters:
✔ They reduce high tariffs on U.S. exports, which lowers the cost of selling to customers overseas.
✔ They maximize small-business resources by eliminating inconsistent Customs procedures and improving and reducing burdensome paperwork.
✔ They minimize risks in foreign markets by providing certainty and predictability for U.S. small-business owners and investors.
✔ They enforce intellectual property rights.
✔ They promote the rule of law so that small businesses know what the rules are and that they’ll be applied fairly and consistently.
U.S. importers also benefit from such trade agreements. Just as the countries with whom the U.S. has a trade agreement have to provide improved market access for American goods, the U.S. must provide similar considerations to the countries with which the U.S. has an agreement. So if you’re an importer and you deal with the countries the U.S. has agreements with, you’ll also experience the elimination or reduction of tariff rates.
The U.S. has trade agreements with the following countries (I’ve organized the list by continent):
✔ North America: Canada and Mexico, under the North American Free Trade Agreement (NAFTA)
✔ Central America and the Caribbean: Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua, under the Dominican Republic–Central America–United States Free Trade Agreement (CAFTA-DR); Panama, under the United States–Panama