Overcoming cultural differences
In some parts of the Middle East, nodding your head means ‘no’, while shaking your head means ‘yes’. In Europe and North America, keeping eye contact is a sign of sincerity and respect, while in Asia it’s interpreted as disrespectful and rude.
When it comes to doing business abroad, cultural differences are unavoidable. There are steps you can take to make sure that these are limited to an embarrassing faux pas at the dinner table, and are never outright hindrances to doing businesses.
Bear in mind that no matter what country you’re operating in, a business transaction is worthy of respect, and demands a positive outcome for both parties. Nevertheless, it’s worth doing your homework.
If you are aware that certain cultures prefer to develop personal relationships before embarking on a new business venture, while others will prefer snap decisions made on gut-instinct or an attractive proposal, you will be able to adapt your approach accordingly.
The Chinese, for instance, prefer to meet Westerners face to face, and making the journey in person not only shows your commitment to the business deal but can also help smooth access to senior decision makers. In Indonesia and Japan, the exchange of business cards is an important part of any new business relationship and there is a simple etiquette to follow which will pay dividends in the long run.
You won’t be expected to speak fluent German, Mandarin or Swahili, although any small effort you do make will be greeted appreciatively. It’s not uncommon to hire the services of a translator on overseas trips, and in certain industries the use of local negotiators in the tender process is standard.
Another way of ironing out cultural differences is by appointing local partners. They will often improve your chances of identifying genuine business opportunities and use their expertise to tailor your product for the local market. By using an international trading solution, such as Alibaba.com, you can meet vendors virtually and transact securely online.
Financing your export business
Many British SMEs are aware of the potential for their products and services in foreign markets, but lack the finance to grow their business overseas. After all, the capital expenditure needed to step-up operations, purchase equipment, or inventory, can be beyond the scope of a growing mid-sized business.
A survey by EEF, of 100 UK manufacturers, found that almost half of these expect China to be the top export destination within five years. But have they considered the management time, project finance and expenses needed to make this a reality?
In the present economic climate, where banks are reluctant to grant an overdraft and loan applications to SMEs, many have been forced to put their expansion plans on hold. But the tide is changing. With the Government increasing its efforts to roll out schemes to provide investment for SMEs, there could be new opportunities for those looking to fund export expansion.
At present the Government is actively soliciting private funds that will make money available for SMEs with the potential for high growth. Already, Enterprise Capital Funds have earmarked £200m for the next four years. This, in addition to the forthcoming Business Finance Partnership scheme, is hopefully just the tip of the iceberg.
You should also be aware of UK Export Finance. This Government department provides an array of services to help businesses secure funding for their export activities through its Letter of Credit Guarantee Scheme, Supplier Credit Financing Facility, Buyer Credit Facility, and Enterprise Finance Guarantee, a loan guarantee scheme.
Don’t dampen your export ambitions for lack of funding, because where there’s a will there’s usually a way.
Dealing with the tax implications
Getting to grips with import duty and any associated taxes is indispensible if you’re going to make international trade work for you. Therefore, you should seek specialist advice on the financial implications for your business of any potential imports and exports, and make sure these are factored into the price you negotiate.
Countries outside the EU will often charge a duty on imports, depending on the product. Exported products are also liable for purchase tax or its equivalent within the country of purchase. Although it is usual for the customer to assume responsibility for paying the duty on goods, it is worth verifying this in advance.
Certain products will qualify for reduced rate of duty, or be duty-free, so it’s important that you supply the correct documentation.
If you’re selling, supplying or transferring goods out of the UK, you may need to charge VAT. In general, exports to countries outside the EU are zero-rated, as are exports to individuals who are registered for VAT in another EU country. However, to qualify you must follow strict rules and keep the necessary paperwork.
HM Revenue & Customs publishes the Integrated Tariff of the UK, often just referred to as the Tariff, which is the official guide to importing and exporting taxes and duty. It contains the codes and customs requirements for import and export paperwork. UK Trade & Investment (UKTI) can also provide information about various destination countries, what taxes need to be paid and whether the exporter or importer is obliged to pay them.
The British Government works hard to overcome tariff barriers, burdensome customer procedures and discriminatory taxation. Firms that are facing trade barriers should get in touch with UKTI, who can help improve market access.
Managing shipping and logistics
Companies operating domestically will already be familiar with shipping and logistics, and it only requires a few additional steps to widen systems to cover international operations.
Firstly, you will need to manage some additional paperwork – filling in customs declarations in quadruplicate can be time consuming, so it’s important you get a system in place.
Secondly, you should bear in mind that packaging needs to be more robust in view of the longer transit time for international deliveries. It is your responsibility to ensure your goods reach their destination in the same condition as they began their journey. There are insurance options that will cover loss or damage for you, which are essential for valuable shipments.
Shipping prices can make the difference between your product being affordable and it being too expensive, therefore you will need to find transport partners who can provide you with competitive rates. Bear in mind, however, that a provider who can guide you through the process and offer experience delivering to certain markets holds extra value. If your overseas customer is already buying goods from the UK, it might be possible to organise a joint shipping to reduce costs.
Import and export professionals can manage the shipping process for you, and it is worth considering this if and when your export business takes off.
James Hardy is Head of Europe at Alibaba.com.
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