This discussion is a unique occasion for the meeting of minds and the discovery of new pathways in international business ventures. Something bright to build upon for enhanced competitiveness in a globalized and very competitive business world. The future lies in your hands.
Introduction Definition of International Business International business imperatives Opportunities in international business Examples of exportable products from Nigeria Issues that can kill your export business Risk associated with international business and tips on how to minimize them and maximize profit conclusion
International business is a solid pathway for attaining entrepreneurial climax in our todays globalized world. It possesses immense potential for business expansion and profit maximization. It is twin blest: blessing both the individual entrepreneur as well as the home country from which the entrepreneur operates.
International business : Provides more lucrative jobs for organizations/industries that are so oriented and give them brighter prospects. Impacts positively on price level, consumer choice and wages.
It attracts incentives for innovation and improved product quality. It makes the industrial sector more competitive through imports of capital goods and material inputs. It promtes technology transfer
Nigerian entrepreneurs have great potentials for profitable participation in international business because: Nigeria: Is rich in resources Has a continuously emerging consumer class Has potentials for sharpened efficiency Has incredible growth potential and thus; Can become en emerging market leader.
Nigeria is fast- becoming the Gateway for Sub Saharan Africa ….and It is time for Nigerian entrepreneurs to seize the numerous opportunities by walking through this gateway
However, as juicy as these opportunities/benefits may seem, there are a number of risks associated with international business. Therefore, any entrepreneur who wishes to make great profit from international business must acquaint him/her self with these risks so as to mitigate against them.
This presentation therefore seeks to highlight the processes and procedures associated with doing international business so as to enable participants avoid avoidable risks and maximize profits.
International business consists of transactions that are devised and carried out across national borders to satisfy the objectives of individuals, companies, and organizations.
More and more firms around the world are going global, including: Manufacturing firms Service companies (i.e. banks, insurance, consulting firms) Art, film, and music companies
causes the flow of ideas, services, and capital across the world offers consumers new choices permits the acquisition of a wider variety of products facilitates the mobility of labor, capital, and technology provides challenging employment opportunities reallocates resources, makes preferential choices, and shifts activities to a global level
There are boundless opportunities globally that can be harnessed from the following International Business types: Export-import trade Foreign direct investment Licensing Franchising Management contracts
These International businesses have also created a network of global links that bind countries, institutions, and individuals with trade, financial markets, technology, and living standards. For example, a reduction in coffee production in Brazil would affect individuals and economies worldwide.
Total world trade declined dramatically after 2000, but is again on the rise. The rate of globalization is accelerating. Regionalization is taking place, resulting in trading blocs. The participation of countries in world trade is shifting. These changing trends provide immense opportunities for Nigerian entrepreneurs.
Between the 1960s and the 1990s the importance of manufactured goods increased while the role of primary commodities (i.e. rubber or mining) had decreased. More recently, there has been a shift of manufacturing to countries with emerging economies. There has been an increase in the area of services trade in recent years and this also portends great opportunities.
These categories of products are currently export-ready in Nigeria. Furniture Clothing Food Products Commodities Minerals Automobiles
Minerals Aqua Marine Bauxite Columbite ore Calcium Carbonate Coal Gold Galena Gypsum Gems Iron Ore Kaolin Lead Ore Marble stone Pyrite Sapphire Tin Tin Metal Ingot Tourmaline Tantalite Wolframite Zinc Alloy Ingot Zinc Ore Zircon Agricultural commodities Cassava Cashew nut Charcoal Chillies (Dried) Cocoa beans Coffee Cotton Lint Cotton Fish Fruits Ginger Groundnut Gum Arabic Horns (Cow) Kolanuts Poultry Rubber Sesame Seed Sheanuts Shrimps Skins Snails Tobacco Vegetables & Oil Wheat Pellets Yam
An entrepreneur intending to go into international business must assess his/her readiness using the export readiness/fitness checker. The Export Fitness Checker takes a firm through eight dimensions of business management in its revision of preparations to export. These are Strategy, Marketing, Production, Distribution and Finance under business ; and Planning and Analysis, Organizing and coordinating, and Monitoring and Improvement under management.
The tool enables the entrepreneur to identify possible gaps as he/she prepares to enter a foreign market. If the company has already started exporting or is in other export development activities, the tool enables them to discover some useful tips so as to maximize and sustain the profitability of the business. Neglecting these issues can kill the business even before it stabilizes.
Strategy: Vital questions/issues that must be addressed include Do you know if Nigeria has any bilateral or multilateral trade agreements that may make exporting your product(s) attractive to a particular area(s)? Do you know if there are any incentives offered by or through the government for the manufacture or export of your product(s)? Do you have a clear and written description of who your potential buyers are, or might be, specifying who you are, where you are, etc.? Can you meet the specific technical and non- technical requirements of your potential buyers concerning your product?
Strategy contd: Can you adapt the features of your product, beyond what competitors are doing, to the needs and wants of your prospective buyers to enhance your bargaining position with them? Can you write a delivery strategy for your product that may enhance your bargaining position with prospective buyers? Can you write a pricing strategy for your product that may enhance your bargaining position with prospective buyers
Marketing: Vital issues that must be addressed include Do you know how to examine your potential market to see if there is a group of buyers out there whose needs and wants you can meet more adequately than your competitors? Do you have the means to communicate with prospective international buyers through advertisement and promotion? Do you have the means to communicate with prospective international buyers through participation in international trade events, dissemination of sales literature and personal sales?
Marketing contd: Vital issues that must be addressed include Do you know how to get your staff and procedures ready to carry out international sales and contract negotiations effectively? Do you know how to make preparations to locate, select and negotiate terms with sales agents effectively to gain strategic advantage? Do you know how to select a particular Incoterm for making quotations?
Production: Vital issues that must be addressed include Do you know how to Increase your production capacity to produce the quantities that will be required for future export orders? Do you have a system that ensures the level and consistency of quality of the product to be exported? Do you have a system to ensure the availability of sufficient quantities of inputs at proper quality at an affordable cost and on time? Do you have a system in place to ensure timely production of export orders? Do you take measures to ensure that your companys average production cost per unit is at least at the level of your competitors? Do you have a system in place to reduce production costs?
Distribution: Vital issues that must be addressed include Have you studied packaging requirements for freight and made preparations for them? Have you trained your staff in handling export procedures and documentation? Have you studied all alternative modes of freight for shipping your export orders and selected the optimum mode with respect to reliability and cost? Do you know how to take measures to offset the disadvantage of your shipping costs being higher than that of your competitors? Do you know how to make preparations for materials handling to cater for special storage requirements that your product may require
Finance: Vital issues that must be addressed include: Do you know how to make calculations to determine how much initial capital you may need to begin exporting and when it will be required? Can you meet the criteria of financial institutions for creditworthiness if and when you need funding for initial capital investment? Can your corporate resources for foreign market development be freed without endangering your domestic market position or long term prospects? Do you know how to make calculations of profitability under different conditions (e.g. terms of payment, order quantity, product specifications, etc.)?
Finance contd: Do you know how to use pre- as well as post- shipment financing? Do you know how to evaluate overseas customer creditworthiness and ensure timely collection of payments from them? Do you have everything in place to keep accurate records of your export transactions? Do you know how to calculate the risks that exporting may expose your company to and take precautions to insure against such risk?
Planning and Analysis: Vital issues that must be addressed include: Do you have a written export plan that clearly articulates and justifies the selection of the target market you intend to serve? Do you have an export plan that clearly articulates and justifies how the export product will be positioned in terms of its features and attributes in the target market? Have you decided which capabilities you must have to successfully implement your strategy? Do you have an export plan that clearly articulates how you intend to communicate (promote and advertise) with the market?
Planning and Analysis contd: Do you have an export plan that clearly articulates how you will secure sufficient quantities of inputs at proper quality at an affordable cost and on time? Do you have an export plan that clearly articulates how you intend to build sufficient production capacity to produce and deliver the quantities for export orders? Do you have an export plan that clearly articulates how you intend to ensure the timely production of export orders at minimum cost? Do you have an export plan that clearly articulates how you will achieve the desired level of quality for the products to be exported consistently?
Planning and Analysis contd: Do you have an export plan that clearly articulates how distribution channels (agents, wholesalers, retailers, etc.) will be selected and utilized? Do you have an export plan that clearly articulates how you will install procedures to keep accurate records of your export transactions? Do you have an export plan that includes projections including pro forma balance sheets and income sheets for the next 3 5 years?
Organizing and Coordinating: Have you appointed someone to prompt sales inquiries, respond to them and close sales with a clear description of authority/ responsibility and schedule? Have you appointed someone for maintaining an adequate level of working capital for export production and operations with a clear description of authority/ responsibility and schedule? Have you appointed someone to arrange for the production and delivery of export orders with clear a description of authority/ responsibility and schedule?
Organizing and Coordinating contd: Do you have or can you acquire the necessary staff knowledge and skills for prompting sales inquiries, responding to them and closing sales through training or recruitment? Do you have or can you acquire the necessary staff knowledge and skills for maintaining an adequate level of working capital through training or recruitment? Do you have or can you acquire the necessary staff knowledge and skills for the production and delivery of export orders through training or recruitment?
Organizing and Coordinating contd: Do you have or can you acquire the resources (money, time, etc.) for prompting sales inquiries, responding to them and closing sales? Do you have or can you acquire the resources (money, time, etc.) for maintaining an adequate level of working capital? Do you have or can you acquire the resources (money, time, etc.) for the production and delivery of export orders?
Monitoring and Improvement: Vital issues that must be addressed include: Have you developed procedures to monitor the completion of tasks related to prompting sales inquiries, responding to them and closing sales? Have you developed procedures to monitor the completion of tasks related to maintaining an adequate level of working capital for export production and operations? Have you developed procedures to monitor the completion of tasks related to the production and delivery of export orders?
Monitoring and Improvement contd: Have you build a system which will give you information about whether the tasks related to prompting sales inquiries, responding to them and closing sales, have been successfully performed and how they can be improved? Have you build a system which will give you information about whether the tasks related to maintaining an adequate level of working capital for export production and operations, have been successfully performed and how they can be improved? Have you build a system which will give you information about whether the tasks related to production and delivery of export orders, have been successfully performed and how they can be improved?
Export business can be a great opportunity, but it is risky and challenging at the same time. These risks are totally different from those encountered domestically and may be unavoidable, but you can minimize them by taking proper precautions. Below are some of the common risks associated with export/international business: Political Risk : The country where your client is located may experience major political instability. Such instability could result in defaults on payments, confiscation of property, exchange transfer blockages, etc.
Legal Risk: At domestic level, business are subject to a myriad of laws, regulations, restrictions. But internationally, there are much more complexities. International transactions are governed by unilateral measures, bilateral relationships, multilateral and regional agreements. This difference in law may have impact in such areas as taxation, currency dealings, property rights, employment practices, etc. Credit Related Risk: While doing business internationally, trading can seem complicated and risky. Besides political, legal and other risks, the most common problem businesses face is the risk in the transaction. To overcome payment related risks, an exporter needs good understanding of different payment methods in international trade. Choose a payment method which provides you with some security. Try to avoid open account method, at least initially.
Internet Frauds: Like in any other place, the Internet is not free from scammers and frauds. These people are very cunning and being smart it is not enough to protect yourself from them. It is not only individuals who are targets for a variety of illegal schemes but also small as well as large business organizations. Quarantine Compliance: Many countries (especially the European countries) have strict quarantine requirements to prevent the spread of contagious disease. Before sending a shipment, ensure that your products are allowed to be exported to the destination country.
Political risk and country risks : Always do extensive market research and try to find out the politics, economy, culture and business environment of the country where your client is located. Besides language barriers and legal restrictions, your business may be get affected by suddenly introduced new regulations, political riots or natural disasters. If you are dealing in a foreign language, taking assistance of a professional language support is a good idea. In export business, a clear agreement is very important to get rid of confusion and to reduce risk. If you find that doing business with a company in a foreign land is very risky, don't get involved in long-term business deals.
Legal risks : Often, we find that most of the international business laws are based on treaties. So, it is always a good idea to locate the relevant treaties while researching for any specific international business law. The Internet is a great source and you would certainly get a lot of information in hundreds of websites. While studying the laws, make sure whether there is any possibility that a conflict would arise between the international and the domestic law.
Credit Related Risks: Always use a reliable payment method for transaction. Always try to know exactly what costs you and your client are each responsible for. Shipping or air freight, import duties, taxes, onward delivery to your premise- consider all these things before signing the contract Foreign currency exchange rate could change, and therefore, it is important to keep yourself ready for some extra expenses
Assess the Creditworthiness of Your Customer: Don't get excited. Use your common sense to understand the offer; does he want to buy your product without asking about the price or quality? Has he accepted the deal without bargaining? Is he very quick to know your account number? Analyze all these things and only after that take the next step. Do not provide financial account information of your company unless there is a good reason to do so.
Get all the terms and conditions, modes of payment, sales conditions, quality inspection, etc. in writing. Always choose Letter of Credit (L/C) or Escrow as payment methods. Check the L/C number, opening date & place, name & address of the issuing bank, valid date, shipping date, etc. Request for a nominal payment for samples.
Business at the international level provides immense opportunities for great wealth creation by entrepreneurs the world over. However, it involves different risks which are different from those encountered while doing business at the domestic market. The best way to manage and minimize those risks is to recognize them and Prepare a simple risk management plan for your SME that analyzes where you are exposed to risks. If necessary, talk to experienced advisers/expert consultants to identify, assess and manage the risks. Then, venture………The sky will be your starting point