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Saturday, November 1, 2008

IMPORT/EXPORT MANAGEMENT AND SMALL BUSINESS FEDERAL GOVERNMENT CONTRACTING

Because the world has become tightly wired technologically and the current economic situation ties us inexorably to foreign economies, it is likely small business will encounter the import/export process either on the selling or the buying end of federal government contracts involving foreign countries. This is particularly true with Foreign Military Sales (FMS) contracts through DOD and services contracts with civilian agencies such as USAID.

Key to your success will be the development of links to buyers or sources in other nations. You may have gotten the idea that it is a simple and perhaps easy enterprise to get into and successfully perform. It is not in my experience any such thing. Companies who are successful evolve contacts and product relationships in foreign countries and in the US that take careful and businesslike approaches. You will find yourself importing to this country by exporting from other countries and vice versa. There are laws and processes that apply in both domains governing taxes, duties and the import/export process.

It is recommend that you research thoroughly the answers to the following questions:

(a) What are the specifics of the equipment and supplies you are becoming involved in? (Manufacturer's part number, performance specification, unique qualities and market potential) What are the distribution channels that currently exist; is there a product warranty and are their spare and repair parts involved?

(b) Who buys the equipment and supplies in the United States and in countries you intend to sell to. (commercial consumer, government agency, large business, hospitals, military etc.) Do you plan to do market research on the potential demand for a product before you buy it? My advice is that you should - before you buy. I further advise that you research practical marketing, sales and distribution channels for a product before you buy it or import it. What are the possibilities of locally retailing it yourself?

(c) What are the laws and regulations regarding the movement of equipment and supplies? How are they taxed in the US and how are they taxed in foreign countries? Are they regulated by US or foreign countries? Are licenses required to either import or export the items? The answers to all these questions vary with the product and the US State Department and US Customs and Border Protection will have those answers once you identify the equipment and supplies. The links to the associated web sites are in the section below entitled 'THE REGULATORS'

(d) What service can you perform in (a)-(c) above? What value can you add to the process? Do you have special channels to either a customer or a source for the supplies and equipment? Do you have special knowledge or do you know others with special knowledge of these equipment and supplies, customers and sources which you could involve in creating or designing a niche no one else is filling or offer these items at a price attractive enough to generate volume and profit for your business and beat the competition.

(e) Who is your competition and how are they performing (a)-(d) above? Your business involves offering the service of importing equipment and supplies to fill the need in the US from sources out of the country and the other way around. You must develop an available niche that other companies do not fill, either by having lower prices, more and better sources, or a low overhead cost for handling the business; faster delivery, better product warranty, parts service and replacement, all play in the equation. Your market plan must address the reliability of your sources in other countries and the US, the quality of their product and how well they support their product in countries other than their own.

SHIPPING AND FREIGHT FORWARDERS

Along the way be particularly careful in your planning to research Freight Forwarders (FF). Use the Better Business Bureau (BBB) or other such government agencies to research the experience the buying public has had with stateside companies you deal with. BBB company research capabilities on the web are free to the public. Carefully review FF terms and conditions and assess the liability arrangements in the event of product theft or loss for goods coming in from overseas.

A freight forwarder is your paid agent to safeguard your property. He is also registered to handle clearing US customs. Certain other FF specialize in dealing with foreign countries. He is normally the individual to which your overseas manufacturer ships you product or through whom you ship product to foreign countries. Relying on the manufacturer himself to ship, insure, handle export and import requirements is not a safe bet and shipping directly to a foreign country has no assurances of delivery.

The foreign factory producer has too much conflict of interest in simply getting you to pay his bill and move on and your expertise in clearing customs in a foreign country may be limited. Freight forwarder expenses must be added to those of the product you buy from the factory source. These expenses should be included in your business plan and in your product pricing prior to going to market.

BE CAREFUL

Be wary of networks and exchange sites on the web that offer to make you rich and handle all the arrangements. This is seldom the case. Check them out with the BBB closely. The BBB Web site search page is as follows:

http://search.bbb.org/

INSURANCE

On the subject of insurance, I assume you have looked into business insurance. A Limited Liability Company (LLC) is a form of Subchapter 'S' corporation that usually experiences the lowest rates for insurance. Have you looked into becoming an LLC? Insurance is a must in the line of business you are pursuing.

THE REGULATORS

For research regarding exporting and importing goods to and from foreign countries please see the web site for the Bureau of Industry and Security out of the Department Commerce. It is the keeper of export administrative regulations and classification numbers. It also has a commerce country chart that shows taxes and duties and license information by country. There are 5 generic product groups in the commerce control list categories:

http://www.bis.doc.gov/

The Office of Foreign Asset Controls out of the Treasury Department is also a site you will have to visit to see if there are any specially designated nationals or targeted countries that the US has regulations against selling to:

http://www.treas.gov/offices/enforcement/ofac/programs/index.shtml

The US State Department and the US Customs and Border Protection regulate and assist in import and export matters. I strongly suggest you visit their web sites. The State Department controls high technology items and weapons through the International Traffic in Arms Regulation (ITAR). Export licensing under the ITAR can be a lengthy process. Services and technical data as well as products of a weapons or high technology nature requiring licenses appear on a controlled items list in the ITAR. A company can unwittingly make an illegal export of technical data simply by conveying the wrong specifics regarding a controlled item to a foreigner over the phone. The serious nature of ITAR violations can be seen in case histories at the following web site:

http://rosecoveredglasses.blogspot.com/2008/11/as-recently-announced-by-project-on.html

For excellent articles on ITAR compliance, please see the following links:

http://mae.pennnet.com/display_article/367164/32/ARTCL/none/none/1/ITAR-compliance:-ignorance-is-no-excuse/

The web site for the US State Department and US Customs and Border Protection respectively are as follows:

http://www.state.gov/e/eb/cba/

http://www.customs.ustreas.gov/xp/cgov/import/commercial_enforcement/trade_rules.xml

You will need to research the above regulatory sites as appropriate once you identify the specific products in which you intend to deal. It will be necessary to determine licensing, declaration, tariffs, taxes and trade implications. All these factors should be fully documented in your business plan before you undertake operations in a product area.

FINANCE AND CREDIT:

Finally your business plan will be your best long -term asset in establishing your credibility with the banking community and with prospective investors. My advice is to start small and slow, with minimal personal investment and begin dealing in products only after you have a well developed business plan and market research indicates they will be profitable. As the business establishes itself, a demonstrated cash flow and projected earnings statement can be used as leverage with a good business plan to achieve a small business loan, perhaps working with the SBA for a guarantee. Small business credit cards are a possibility if you can work the interest rates into your planned expenses and recover them in your product pricing.

Your planned banking arrangements should involve setting up accounts that involve automatic currency conversion features in the countries you plan to do business in.

I recommend being careful not to make your inventory a burden. Carrying excessive financed inventory without associated sales to pay the bills is one of the biggest traps you can fall into. Also remember many products have a shelf life which must be considered in the storage environment.

5 comments:

WL said...

Thanks for all the tips on the blog!
I just came across a site that provides free government contract search info. This is helpful for small companies who have minimal manpower and money to research for these opportunities:

http://www.govcontractsmagazine.com/fbosearch.cfm

Anonymous said...

Nice blog dear i have really learnt a lot from this blog thanks
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Adil said...

Hi,

I personally like your post; you have shared good insights and experiences. Keep it up.

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Anonymous said...

Nice Info! Helped a lot since I have a manufacturing company overseas.

Anyways, if you have a chance, could you give tips for small business doing government contracting inside the U.S. with foreign end products?

FAR 25.103's exceptions are a bit blur and it seems that most contracts regulate BAA which leaves no chance for foreign competitors.

Small Business Federal Government Contracting said...

Thanks for your feedback, Anonymous,

The original purpose of the BAA clause was interpreted very rigidly when it first came out several years ago. If it appeared in any solicitation, the goods or services had to be procured from manufacturing sources in the USA.

As times have changed, and in particular as foreign manufacturing picked up speed, several versions of the clause begin to appear, making exceptions for allied countries, NATO the NAFTA countries and the like. The US also has many weapons systems that are sourced for manufacture in other countries these days.

All I can suggest is that you read each solicitation closely and take the clauses literally.

At the bottom line I think it is fair to say that the Buy American Act is in transition.

I hope this assists you further,



Ken Larson


http://about.me/smalltofeds