::: Trade Talk :::
Trade Tips Part 4: Entering New Frontiers - Responding to an Export Enquiry
Cos Mamhunze, an International Trade Specialist at saibl's Johannesburg office, continues his discussion on Trade Tips in the fourth part of this series of articles on international trade.
Part 1: Trade Tips - Entering New Frontiers - The Key Steps >>>
Part 2: Trade Tips - The Entry Strategies >>>
Part 3: Trade Tips - The Risks >>>
Something still vivid in our memories, the World Cup! Ghana has been awarded a penalty kick against Uruguay in the Quarter Finals, less than two minutes before end of regulation time, and everyone is expectant. It’s just the striker and the goalkeeper!
Picture the above against the scenario where an enterprise gets an enquiry from a foreign market (or even from the domestic market) after having promoted their products, participated in international trade events or due to efforts by South African embassies or saibl. The Ghanaian striker (so experts say) rushed to take the kick, and oops, he missed!
I will be using this soccer analogy in my article for ease of reference.
I know of current and prospective exporters that have sent quotations abroad, but failed to secure orders. The failure is attributed to a plethora of reasons, one of which could be the manner in which the response / quotation was prepared and presented. Responding to an enquiry is something you have control over, and have to do with care.
A prospective buyer is soliciting quotations from a number of other sources and wants the best deal. You also want the best deal from the transaction. A balance has to be struck, but you have to do your best in making sure your response is what would make economic sense from the foreign buyer's perspective and from your own vantage point. This means a rushed job will rarely produce the desired results!
Here are a few tips on things to look out for, which include acknowledging the enquiry, understanding the enquiry, conducting a feasibility study, responding to and following up on the trade lead.
Acknowledgment of the enquiry
We have heard concerns that South African entities take too much time to respond to enquiries, and some are absolutely non-responsive. I guess none of the saibl clients is in the above categories!
A prospective foreign buyer sends an enquiry. Unfortunately but understandably, most enquiries are not very detailed. Details often follow after a few back-and-forth email exchanges. As an exporter, you have to immediately acknowledge receipt of the enquiry. This must not be confused with or equated to acceptance. This acknowledgement is merely to say you have received the enquiry and are working on it.
This is not to say you should respond to every enquiry, because a lot of “419” scam type of enquiries are flying left, right and centre. You have to use your judgment and discard the "trash".
Understanding the enquiry
The next step is to analyze the enquiry to understand what the prospective foreign buyer really wants, which will include product descriptions / specifications, quantities, payment terms, expected delivery dates, amongst other things. Let us say you get an enquiry stating: "I want to import wines for the Zimbabwean market". This is scant information, which prompts you to revert to the enquirer to find out what types of wines, what mix between red, white, dry, etc, when he requires the wines, whether he will collect from your warehouse, and what the regulations are. This also gives you an opportunity, as an expert in your product, to provide some guidance in terms of what you can offer and your experiences around logistics and customer feedback.
As you try to understand the enquiry, also attempt to establish the authenticity of the prospective buyer (the enquirer) and the enquiry. The South African Embassy in the foreign market, the foreign embassy in South Africa and programmes such as saibl can help you ascertain whether the enquiry is genuine and legitimate. Recently, we were trying to schedule an appointment for our client with a Zambian company, when we established that the latter was having problems with the foreign government around labour and tax issues. You would not want to "tie your money onto a cheetah's leg".
Conducting a feasibility study to determine the viability of the deal
This is where most exporters are found wanting. Soccer coaches spend time watching videos of games played by opponents. The idea is to predict what to expect and to plan the team's match strategy accordingly.
Assuming you receive all the relevant information from the buyer around the order, you should then conduct a feasibility study to ascertain whether you will be able to fulfill the order profitably, taking into account requirements and/or restrictions related to the product and the order.
Of primary importance is to ascertain whether you have the capacity to produce the requested quantities within the required time-frames. Some art and craft companies have exhibited abroad and secured huge orders with foreign buyers wanting 5000 pieces of a similar item! You might be able to meet the product specifications, but lack the capacity to meet the deadlines. A strategic decision will have to be made in terms of either introducing shifts, employing additional staff, arranging for overtime or collaborating with other players in the same industry. A cost-benefit analysis has to be conducted quickly to see if it will be profitable at the end of the day.
Import regulatory requirements, such as fumigation of wood-based products and mandatory pre-shipment inspection, quotas and import licences must also be investigated. Such exercises cost money, and should be included in the quotation. Some importers insist on a pre-shipment inspection being conducted by agents of their choice. The buyer should be made aware of the financial implications.
Choice of payment conditions depend on a number of variables, such as the supply-demand scenario, risk inherent in the import country, the relationship with the buyer and your own cash flow position, amongst other considerations.
Your feasibility study also has to consider packaging and labeling requirements. Those in the food sector can testify how one has to adapt in order to meet US FDA regulations. If the packaging and labeling requirements call for significant financial outlay to purchase new equipment, it may imply that you will have to wait until such changes are in place - even if it means letting the opportunity pass.
You also have to investigate availability of the relevant mode of transport to move the consignment to the foreign market. Investigate the reliability, frequency, cost and efficiency of ports and country borders. Delays at borders increase costs on your side or the importer's side, depending on the Incoterm selected.
Talking of Incoterms - a new set of Incoterms will be effective from January 2011. It seems that the number of Incoterms will be down to 11 from the current 13 and in two broad categories as opposed to the current four. Make sure that you familiarise yourself with these changes!
Your viability study should also include the documents required to effect the transaction. The documents could include the Certificate of Origin (refer to the previous ad hoc Bulletin that focused on the SADC Certificate of Origin). If you don't have one, establish how long it will take before you can obtain such a certificate. If the importer's timeline will have lapsed by the time you secure one, then rather let this opportunity pass. Notify the foreign buyer and also advise him once you are in possession of the certificate of origin. Other documents include inspection certificates, commercial invoices, consular certificates, amongst others.
Cargo insurance and credit insurance are important. The cost related to taking out insurance cover should also be factored into your quotation. Credit insurers like the Credit Guarantee Corporation can provide you with relevant information related to the risk profiles of different countries based on the levels of political stability, rule of law, crime levels, etc.
Competitor products and their prices are vital. In countries where saibl has a presence, the Country Trade Representatives can help conduct "snapshot" surveys for you. The South African embassies can also play a big role in this regard.
Pre-shipment inspection, payment conditions, special packaging and labeling, marketing support, shipping and delivery date vis-à-vis availability of reliable transport arrangements have a bearing on the costs to be incurred in fulfilling the order and must be factored into the final quotation.
I have mentioned elsewhere the perception that South African companies do not always communicate in good time. You have to communicate your decision to the enquirer in a timely manner, regardless of whether you are proceeding with the deal or not, or if you have other alternatives to offer.
After concluding your feasibility study, you can now respond to the enquiry by preparing and submitting a quotation that incorporates findings from the feasibility study. As a golden rule you should include the validity period of the quotation to guard yourself against unforeseeable future changes such as currency fluctuations and rising transport costs. You may consider including a clause to the effect that changes in freight charges and exchange rates will be borne by the buyer, or will imply price changes as well.
Once the quotation is accepted, you can formalize the acceptance by drawing up a pro-forma invoice. We have indicated elsewhere that a pro-forma invoice can be used by the buyer to secure a Letter of Credit from his bank.
Where possible, you should try to send samples and product information along with the response, including minimum order quantities, quality certificates (e.g. SABS), allowable discounts, as well as the nature of promotional support you are prepared to extend so that the product may become known in the target foreign market.
Upon receipt of a purchase order from the buyer, you then need to officially accept it (if it meets your approval). There is a lot of communication to be done here, which is very important!
The soccer analogy is interesting. I have seen shots at goal that hit the cross bar, roll back into field of play and are cleared off the goal area. Other rebounds are met by strikers following up, and converted into goals!
Following up can be done via email, phone call, fax or even physical visits. Remember, the foreign buyer may be receiving several other offers. Just make a call and send an email to confirm that you have dispatched the response and samples, to find out if the pro-forma invoice has been received or if there is anything else needed by the buyer. The importance of a human touch should never be under-estimated!
You have to respect deadlines set by the foreign buyer. When you cannot meet the set deadlines, communicate that to the buyer and agree on new deadlines. Note thaqt some deadlines, especially public tenders, are rarely changed.
If the Ghanaian striker "had taken his time, gained composure", experts say he could have scored, and Ghana could have proceeded to the next round. Similarly, when you get an enquiry, don't rush, but also don't tarry unnecessarily. Gather relevant information and package your response properly. If you don't bag the deal, it must be for good reasons and on circumstances that you may have no control over. A rushed quotation may result in you loosing the deal or even worse, incurring huge losses on the deal.
Cos Mamhunze is an International Trade Specialist based at the saibl head office in Johannesburg. He is a student of international trade at the International Trade Institute of Southern Africa (ITRISA) - whose outline of steps in this article are included with their permission - and a member of IATTO (International Association of Trade Training Organizations). For more information, contact Cos at tel: +27 11 602 1273 or email: email@example.com