Wednesday, May 25, 2022

Alberto Romo-Chavez Alro Export

Blog by Alberto Romo-Chávez Jr. about Global Trade

PYMES Deben exportar

"This article focuses on Mexican companies with potential to export to the US. Yet, manufacturers in other countries can benefit as well, by learning the way channels of distribution are configured in the US market. In other words, this article should benefit every company that wants to enter the US market.Alberto Romo Chávez, Jr.

Guidelines to a profitable Export Business

"International Trade is not a set of rules, but a series of details" Alberto Romo Chavez, Jr.

Sit comfortably. I am ready to give you valuable “know how” for a successful export of "Manufactured Goods" (Process of manufacturing a product that is made manually or with the assistance of machines) to the US and similar markets, without large investment. This invaluable information is based on an enrichment obtained in 40 years of personal experience in global markets.

Mexico has an abundance of untapped potential. Yet entrepreneurs seem unaware of the existing possibilities for hundreds of exportable products neither, thousands of others that can be developed into exportable products by applying Mexican creativity and labor. Mexico has sufficient raw materials and a large work force. We only need certain knowledge and positive thinking. Let’s review some key ideas. 

This is the first major decision exporters face: to which market other than the US do I export my products? The Mexican government suggests and tries to guide us to diversify our export markets and to depend less on the United States.

This may be possible to a certain extent and for certain goods, as is the case of basic products (generic goods, normally raw materials or primary products).

Perhaps this tactic makes sense, especially in these times of uncertainty in the renegotiations of NAFTA.

On the other hand, manufactured products comprise a sector that produces millions of jobs and plays a fundamental role in all exports to developed countries. That’s where large markets exist, including retail chains that cover the entire country.

Surprisingly, most goods exported to the US have little or nothing to do with NAFTA. According to José Antonio Meade, Mexico`s Finance Minister of the SHCP, 51% of the goods that Mexico shipped to US are not included in the Treaty.

Without NAFTA the additional cost for certain products could represent 3% on duties. The percentage can easily be assumed by the supplier or buyer and then passed on to the consumer

When NAFTA was created in 1992, we negotiated with greater wisdom than our counterparts. Over time, our advantage became evident. Today the Treaty is being renegotiated. We must understand that most Treaties are not perpetual or exclusive. Do not be demoralized if the negotiations fail or, if some adjustments are made. We have thousands of products to export profitably, with or without Treaty.

With or without NAFTA the natural market for our manufactures is and will be the US. The neighboring State of California is the 7th Economy of the world. Other nearby states, such as Texas, absorbs our products in amounts often totaling more than our manufactured exports to other continents.

We have not managed to dominate certain product categories in the US due to our lack of experience. 

We need to learn some trade secrets, and understand export “culture". Knowing the language, traditions and rules of international trade will provide strong foundations for businesses of all sizes as the global economy increases.

Nonetheless, as we consider our options, the greatest opportunities for export growth today lie to the north. In the United States we can promote our products with a minimum of investment, we are far more competitive than other countries and the percentage of our entrepreneurs who speak English is greater than those who speak any other language. We have an added advantage when we include the millions of Mexicans living in the US.

As an example of our cost advantage, let’s compare exports to another continent vs. to the US; export costs to overseas markets from most Mexican places can be calculated in the following way: land freight to port, maneuvers, sea freight to the port of destination and handling, etc. The approximate cost might amount to $ 3,000 US, when you consider shipping in a sea container (40 feet) with a capacity of 1,908 cubic feet or $ 1.57 per cu/Ft, versus $ 0.31 per cu/Ft transportation cost for a land container (53 feet) to the US. Since professional buyers base their decisions on the landed cost (L/C) at destination and NOT, on the purchase price, Mexican goods exported to the US hold the advantage! Huge advantage when you are competing.

Among other options, we have railroads for heavy and bulky products. Exporters from other continents cannot use this means of transport to the US, thus we enjoy another important advantage.

Based on the lucrative market, shipping costs and faster delivery, our first option should always be the US market. See, below:

There are three ways to penetrate the American market;

  1. Method on quoting the product from "origin" FOB, CIF, etc., or
  2. Method on establishing a wholesale business in the US, to sell to independent stores also called Mom's & Pop's, colloquial name, or
  3. Method on hiring wholesalers, distributors or agents (Strategic Partners) to promote our goods.

1) Method on quoting the product from "origin" FOB, CIF.

When starting to export your company needs to develop a catalog, price listings or product samples. Next you’ll search the distribution channels to find potential customers. Must prepare your quotes depending on the type of customers you approach, since the product price should be different for retailers than for wholesalers. Differences can range up to 15% lower for wholesalers, depending on the product. Remember, you are competing with exporters from other countries.

You need to determine if your product, quoted at “origin”, is competitive abroad. If you cannot compete from “origin”, examine other alternatives.

The following information will help you find out if your product is competitive in the US market, saving you time, effort and money. This technique is based on retail prices that define competition in the different categories, (exclude designer, electronic and basic products; these are handled with different criteria).

The key to knowing if your product is competitive requires a trip to a city that is further away or one closer to your factory. There is a possibility that your product will be more competitive in a distant market than in a nearby market or vice versa. You might also check eastern markets vs. western.

Consult the shelves of the retail chains and locate an identical or similar product to the one you wish to sell.

Once found, use this reliable "Empirical Rule": divide your selling price between 2.5 and 3. If the cost of your product in the US is lower than the prices you see on the shelves, it will be competitive in the USA, and similar markets. Example a "Glass Goblet" that retails for $ 10 dollars typically will cost $ 3.35 in the origin country.

If your product lands at a lower cost, you can promote it with confidence, especially if you offer more attractive packaging or longer payment terms.

Now, if a buyer comes to your factory and places an order, be careful before you start to celebrate. It can be extremely dangerous if the buyer becomes your only client, leaving you at his mercy and totally dependent on him.

If your product does not compete in price from origin and no buyer appears at your door, never give up, there are as mentioned before two additional ways of exporting to the US.

2) Method on establishing a wholesale business in the US, to sell to independent stores also called Mom's & Pop's, colloquial name

In the US market you have: retailers, wholesalers, independent stores (Mom's & Pop's), on-line stores (selling directly to consumers) and jobbers (discount sellers) who sell to wholesalers and stores.

Their buyers specialize in product categories, they know international prices at their fingertips and they handle extremely strict policies, this makes negotiation more complicated and arduous. The way to overcome this obstacle if necessary is to sell to channels that are not configured to import. Mom's & Pop's (independent stores) offer this important opportunity.

There are thousands of Mom's & Pop's in the market. They represent approximately 80% of total retail stores and generate 30% of retail sales.  

They have an average of 9 employees per store and sometimes manage more than one retail outlet.

Independent stores acquire products to create a "concept" that will attract a specific market of consumers. Example, "Florists" promote pots, flowers, vases, foliage etc.

These independent stores have a 30% of the vast US retail market.

Their operations are small, their staff might be inexperienced, they do not have an Import or Traffic Department to bring direct products from overseas therefore they buy in regional fairs.

Most independent stores attend regional fairs to buy products. These fairs take place in several cities across the United States. They are specialized; you can select the one related to your product. Examples: Hardware in Chicago, Furniture in High Point NC, Gifts n Los Angeles / Dallas / Atlanta / NY, etc. In general, Fairs are held twice a year; winter shows are the most important.

Within the fairs there are two types of spaces for rent, permanent and temporary. Selecting a temporary space for 3 days, may cost up to $ 10,000 USD, approximately including all expenses.

The location of your "Stand" at a fair is most vital. Achieving positive results requires viable products and a favorable location, so it is advisable to visit the fair and analyze its possibilities before participating.

To determine the wholesale prices for your products; add 10% to the cost of landing for handling and multiply by two (2) Example: landing cost $ 10+10% (handling) =$ 11. Then, multiply by 2 =$ 22. This result is your selling price as a wholesaler.

Your independent-store client will double the price of $ 22 and sell it to for $ 44 / 45. Multiplying by two is known as “Keystone” pricing.

Most of the buyers who attend these fairs come from independent stores located in the region (chain buyers sometimes attend).

Each of their purchase orders can reach several thousands of dollars.

Normally, a wholesaler grants 30 days credit and charges 1% monthly interest for unpaid bills. 

To reduce the risk when extending credit, use sites that evaluate the credit history of buyers (Back-Dun & Bradstreet). Banks may also provide assistance in this regard.

You can count on many repeat orders when you participate consistently at fairs. However, do not expect immediate results; sales will grow over time. Keep in mind that participating in fairs is a formal commitment and that planning should be appropriate..

Consistent participation helps to obtain a better “stand” location at the fair and produces greater confidence among customers. At each succeeding fair, continue to display your lines and introduce new or additional products to expand your sales.

To carry out this project, you must have inventories available for immediate delivery. This preparation can be achieved by developing your wholesale business, maintaining good records and, having stock at all times within a warehouse or distribution center.

Once settling in a destination use "Reps" to support your sales. They already have captive clients and can contact stores within the market area to introduce and sell your product. They work for a percentage of sales.

In addition, having inventories on hand offers you the opportunity to sell on-line. This marks another great sales opportunity.

If the costs of creating a wholesale operation seem beyond reach, you still have options.

3) Method on hiring wholesalers, distributors or agents (strategic partners) to promote your goods.

Instead of establishing your own wholesale business, you may hire wholesalers, distributors or agents. Make sure that they combine the abilities of warehousing your products, promoting your lines and collecting on invoices.

Sales commissions for services fluctuate up to 18 percent of the sales price, depending on the services involved.

When selecting the right candidate negotiate in depth to ensure the reliability of the representative. Remember, you will lose control of the prices and client identity, two extremely important factors. Thus, you must maintain tight supervision at all times.

Now, you have the necessary information to make sales from origin to retail chains and how to approach independent stores if choosing to act as a wholesaler. Also you now have guidance for selecting a strategic partner. There may be variations in the formulation of your retail or wholesale prices, the thought processes presented here are those that are normally used.

"All products are exportable" ARC

There are other important topics such as packaging, sampling, terms of sale, letters of credit, incoterms, and more (just scan the pages of my books). I hope this quick and simple review encourages you to enter the export world with confidence

Keep in mind, too, that while the American market should be your main goal, you should not exclude other lucrative markets. Just keep in mind that selling to markets on other continents usually requires more skill and experience, as I document in my books.

We are supporting companies by preparing guidelines in simple and clear language to shed light on key export business issues.

My goal is to help you understand each of the concepts necessary to guarantee profitable export activities with a minimum of risks.

This information is based on my experiences as Store Manager, International Buyer (Asia and Europe) for Pier 1 Imports which currently operates more than 800 stores in the US.

Also as Purchasing Director for a International Wholesaler in Los Angeles, California.

In addition, I became the first Mexican to participate in the Canton Fair (Guangzhou) in China in 1974. At that time participation was granted only by Special Invitation from Mao’s Government.

Further, I created an export company in Guadalajara, Mexico that has obtained the most prestigious Export Awards given by the country.

“I have not read it, or merely overheard it, I have lived it every day”
ARC
Alberto Romo Chávez, Jr.
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