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1. Understanding your export market
If you've identified an opportunity overseas, having an in-depth understanding of your market will help you decide whether exporting your product is a good idea.
Take a closer look at the market - how big is the opportunity? Are there any competitors and what will customers be willing to pay? Comprehensive market research is a key step to deciding whether exporting is viable.
You should also see if any prohibitive trade embargoes or sanctions are in place. Read more about how sanctions may impact your transactions. Socio-political unrest or ongoing economic instability could make exporting more of a risk. Legal requirements, such as liability insurance and complying with local regulations, should be considered too.
2. Getting access to your market
Being able to deliver and sell your product thousands of kilometres away requires a network of partners - from banking to shipping to distribution. Finding the right partners to work with is essential, because a smooth supply line will invariably lead to cost benefits.
Nothing beats visiting the market you plan to export to, so you can see for yourself the infrastructure, roads, customs, logistics and other obstacles that your product will have to negotiate. There are also a number of Kiwi organisations who can help you understand your shipping and distribution options, as well as help you follow best practice and avoid exporting pitfalls.
Helpful resources
- New Zealand Trade & Enterprise (NZTE) is the government's international business development agency, offering a helpful step-by-step guide to getting started with exporting
- New Zealand Export Credit Office offers a range of financial solutions which can help Kiwi exporters secure export sales, manage risk and access trade finance
- Export New Zealand, known as the 'voice of exporters', is a supportive network of like-minded business people, who can share trading experiences and provide helpful contacts
3. Being fit for exporting
Exporting overseas can create new logistical and financial challenges for any business, so it's worth answering a few questions to see if your business is in shape to begin exporting its products.
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Can you meet capacity?
Satisfy yourself that your business has the ability to produce larger quantities of product and that your suppliers can scale up to meet your increased demand. As well as making sure you have the finance to fund this increased volume, it's also important to have a plan to cope with success; nothing is more frustrating - or potentially harmful to your business - than turning away orders.
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Are you financially robust?
Although exporting creates a larger market with greater possible returns, the extended period between production and payment for goods can also create a funding gap. There are two ways you can lessen this impact:
- Negotiate better terms - agreeing delayed payment or part payment with your suppliers can reduce your initial outlay. Similarly, agreeing progress payments or payment for landed goods with your buyers can help with cash flow
- Increase your working capital - cash reserves and investment from partners or investors can cover short term deficits. Alternatively, business loans or lower-rate trade finance loans can help with an extended payment cycle
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Are your transportation plans shipshape?
Choosing the right shipping method, understanding customs requirements and having a contingency plan will help you move your goods smoothly.
Typically, container ship transportation is better for larger volumes and is less expensive, but slower. Air freight is suited to lighter or perishable goods, is faster, but more expensive.
4. Customs restrictions
Check that there are no restrictions or special tariffs on your goods, and confirm which countries your goods will travel through. You also need to decide who will lodge the paperwork with customs (usually the exporter). Both New Zealand Customs and the Ministry of Foreign Affairs and Trade (MFAT) can provide information on tariffs, duties and free trade agreements.
Plan for delays and unforeseen circumstances, as these can happen; having a contingency plan in place will ensure you can meet your contractual obligations.
5. Managing risk
Exporting overseas can create payment, transportation and exchange rate risks. There are a range of products and tools available to help protect your business, should problems arise, these include:
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Letters of Credit
Letters of Credit from the importer's bank gives you confidence to supply because the bank will guarantee to pay any outstanding amount in the event of non-payment. Having this additional comfort can give you the confidence to extend credit terms to the buyer, helping them to grow with you
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Collection documents
For additional peace of mind, your bank can help to control the release of goods by arranging for the importer's bank to hold the collection documents. They will only release the documents to the buyer once they have made payment arrangements and the funds are available to you
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Bank guarantees
Payment delays and geographical distance can affect exporter and buyer confidence, so having bank guarantees provides assurance by vouching for the stability of your business as well as your ability to make a payment
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Insurance
You can insure against two of the biggest concerns: damage to goods in transit and non-payment. To protect against these risks, ASB can introduce you to specialists in marine insurance and trade credit insurance
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Foreign Currency Account and Overdraft
Having a Foreign Currency Account and overdraft lets you transact in a foreign currency, which means fluctuating exchange rates are less likely to affect profit
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Foreign Exchange Risk Management tools
Foreign exchange risk management tools can help you to protect your bottom line and manage fluctuations in the exchange rate when exporting overseas
Next steps
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This page is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and should not be relied on. This information has been prepared without considering your objectives, financial situation or needs. We recommend you seek independent professional advice and contact Inland Revenue before acting on this information.
