ABC To Export: Argentina – Part 2

What do I need to start my plan?

The export plan is the roadmap you need to achieve your goal of making international sales, and it will help you to have an analysis of variables and situations that may arise in your export training process.

The first thing you have to do is a market analysis, which will allow you to define an objective and outline the steps and resources that you have to contemplate to achieve your goal. It will also help you to show how well prepared you are on your way to export, either to potential clients, investors or partners.

Market analysis consists of learning about the functioning of the sector in the rest of the world, putting efforts into identifying which are the potential countries to which you could take your export offer. This consists of studying both the demand and the competitors in each destination, to identify whether or not there are business opportunities for your company there.

By identifying a deficit between supply and demand, you can understand that there is a space to penetrate and an opportunity to exploit. The definition of the target country is crucial, it will determine the success or failure of the internationalization attempt. The first step is to find out why a particular market is chosen and explain what makes it strategic.

Within the plan you have to include:

  1. Purpose: tell what you are looking for with the export, the benefits it will generate and how you are going to measure the results.
  2. Product / Service: explain the key characteristics and competitive advantages that differentiate your product or service from others. Do not forget to protect what is related to intellectual property, such as brand and design.
  3. Adaptation: take into account the adjustment of your product or service to meet the demand of the new market.
  4. Logistics: specify how your product or service will reach the target market.
  5. Think ahead: foresee the problems that could arise in the commercialization of your product or service given the change in context and culture.

Marketing channels:

There are several ways to sell in a market, each with its benefits and responsibilities. The choice you make will depend on the coverage objectives of the market and the services that facilitate consumer access to the product.

The main ones are

  1. Direct sales, including e-commerce.
  2. Through a dealer.
  3. Franchising or licensing the brand.
  4. Partnering with a local company (joint venture).

Export financing:

As an exporter you have to consider certain economic implications of the business such as working capital (these are the costs and expenses necessary for the production of goods and services), the delay from the delivery of the product to its collection, insurance against payment defaults, such as letter of credit, or have a budget for commercial promotion.

To meet these costs, you have different sources of financing available.

Banks. Both public and private banks have tools such as pre-financing and post-financing of exports, forfaiting or logistics hubs.

Capital market. It is possible to negotiate different instruments such as promissory notes (dollars), own or third party checks (pesos), competitive rates and terms, among others.

Private equity. Negotiate with other companies to obtain investment in exchange for a participation in profits as a shareholder. The funds can be of two types, angel or venture capital. The differences between borrowing money or partnering with a third party are given by the venture fund, which allows the partner to have some control or internal information on the company’s operations.

What are the orders, invoices and certificates that I must manage?

To be able to export you must have the following documents in shape:

International purchase order: Preceded by an exchange of information between the exporter and the importer regarding the price, quality and quantity of products, it is the response to an informal quote or a proforma invoice.

Pro-Forma Invoice: It is a document that must be presented by the exporter to the importer in English or in the language of the destination country. It can be a fax, a formal contract, or a form. It must contain sufficient information to confirm the business, such as quantity, price, transport, packaging, payment method and conditions of sale. This information is necessary so that the importer can open a letter of credit for the issuance of securities.

Cargo invoice: It is a document that must go along with the merchandise from the exit of the establishment of origin until it reaches the place of shipment abroad.

Commercial Invoice: This document for export represents the commercial operation. It must contain all the initial information that was declared in the pro-forma invoice, as well as others that confirm the completion of the export. It serves to formalize the transfer of ownership of the merchandise to the buyer.

Bill or Certificate of Lading: It is a document issued by the transport company or an agent. It represents the transport contract and the proof of delivery of the merchandise, constituting the proof of shipment.

Packing List: It is prepared by the exporter and includes a list of volumes and a description of their contents.

Certificate of Origin: This document proves that the product is indeed originating in the exporting country.

How to manage orders, invoices and collections for my export?

This applies mainly to sales you make to companies. You have three instances to make a payment:

Before delivering the service: this is the safest method for the exporter, as the risk is transferred to the buyer. The main disadvantage is that it can be unattractive for the counterpart and that, consequently, they decide to opt for another provider with better payment conditions. We recommend using this method for new clients, those with bad credit or from risky countries.

Sharing the risk: there are payment methods that allow the risk of the operation to be divided, such as letters of credit, which are a guarantee of payment by a bank on behalf of the buying company. This instrument is more expensive, so it is recommended for high value trading.

Charging after delivery: in this case the exporter absorbs the risk of the operation, so we recommend not applying it to a customer with whom you are operating for the first time. This method involves a further evaluation of the cost of sale.

How to charge

Most frequent modalities:

Bank Transfer / Payment Order: it is a direct transfer of funds from the importer to the exporter. It is essential that there is strong trust between the parties to guarantee payment security and the correct delivery of the merchandise and documents.

The greatest benefits of this tool are its relatively low costs and its simple operation, which allows the parties to make the payment of advances and financing more flexible. This is due to the fact that the payment order is divisible, allowing the transfer of funds to be carried out partially.

There are certain payment orders that restrict collection, such as the conditional one, whose collection is subject to the fulfillment of some condition or requirement, and the documented one, whose collection by the beneficiary is subject to the presentation of the detailed documents.

In turn, payment orders can be revocable and irrevocable. The revocable payment order is one with fund transfers that can be canceled by the payer without the need for the consent of the beneficiary. All payment orders are considered revocable, unless otherwise indicated. The irrevocable payment order is that transfer that cannot be rescinded without the consent of the recipient, which is why the conditions must be previously established.

Documentary collection: this means allows the exporter to ensure that the importer cannot access the shipment documents until the corresponding payment has been made.

In this case, the seller carries out the shipment of the merchandise and sends, through his bank to his client’s bank, the documents provided for in the purchase-sale contract.

The bank receiving the documentation has the express instruction and obligation not to deliver the documents before receiving payment or accepting a credit (letter) from the importer.

It should be noted that this method does not guarantee payment, but ensures that the importer will not be able to withdraw the shipment unless he has made the corresponding payment.

In this case, the payment order with the corresponding money order is relayed from the importer’s bank to the exporter’s bank, who may make use of the funds only against the delivery of the expected documents.

Letter of credit: given the uncertainty of the exporter of not receiving payment and the uncertainty of the importer of receiving the merchandise in good condition, there is a letter of credit. It is a banking instrument that ensures payment by the buyer and guarantees that the seller delivers the documentation provided for in the international sales contract.

A bank opens a letter of credit at the request of its client and the exporter is notified that he has a credit in his favor, thus committing himself to the payment of a certain sum of money, subject to the merchandise and documentation being delivered under the conditions agreed. The intervening parties are: payer, opener, taker (buyer, importer); issuing bank (importer bank); beneficiary (seller, exporter); and designated bank (exporter’s bank).

Export credit insurance: this optional tool is intended to provide coverage to the exporter against the risks it assumes when carrying out a credit sale operation.

Export credit insurance protects the seller against certain risks that could make loans granted to buyers from other countries uncollectible. The insurer does not take all the risk of the operation, a part is assumed by the seller. This allows the exporter to be careful in choosing his clients, and to worry about collections and recovery in case of bad debts.

How to manage the logistics of my product?

Plan the logistics of the shipments and your after-sales service

Logistics is a fundamental factor in your export. It is very important that before offering it to a potential client you define the shipping process, either by your own management from end to end, through a customs broker or exporting on account and order of a third party.

How to send a merchandise abroad

Although freight forwarders, freight forwarders and, in certain cases, customs brokers are the ones who quote and coordinate logistics, it is recommended that you know and get involved in all stages of the operation. It is also essential that you manage the terms related to international transport, the impact of the chosen medium on the costs of the operation and the operational responsibilities for the company.

When evaluating the most appropriate means of transport, you must take into account:

  • Type of merchandise to be exported
  • Incoterm used
  • Distance to travel
  • Agreed delivery times
  • Necessary packing and packing
  • Transport infrastructure at origin and destination
  • Rates
  • Cargo insurance to hire

Merchandise insurance

You will have to take out insurance that allows you to protect your merchandise against eventual losses that may occur during logistics. The responsibility of contracting the insurance arises from the negotiation between the importer and exporter, where it is necessary to determine at what point the ownership of the cargo is transferred, since at this moment the beneficiary of the insurance changes.

Insurance in international trade can cover from the merchandise to the means of transport and people. In addition, it can include commercial risks such as late payments and political risks such as, for example, a substantial disturbance of public order.

In the case of merchandise insurance, the value of its cost price is insured, plus freight and expenses, plus a percentage for the profit that is expected to be obtained. The values must be verified through the original documents in case it is required to make use of the contracted insurance.

Insurance can range from comprehensive coverage to more affordable limited coverage.

As in logistics, Incoterms refer to the site where responsibility and ownership are transferred.

Logistics Hubs

Having a distribution center close to your client offers you several benefits that, in addition, allow you to provide a higher level of service and have greater competitiveness of your company abroad:

  • Reduction of delivery times
  • Prevention of stock failures
  • Maintains a minimum purchase order size

Source Argentina Government

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