Breaking Into The Trade Game: A Small Business Guide

International Business Plan

PRODUCTS/SERVICES

STEP 1: Select the most exportable products to be offered internationally.

To identify products with export potential for distribution internationally, you need to consider products that are successfully distributed in the domestic market. The product needs to fill a targeted need for the purchaser in export markets according to price, value to customer/country and market demand.

What are the major products your business sells?

1.

2.

3.

What products have the best potential for international trade?

1.

2.

3.

STEP 2: Evaluate the products to be offered internationally.

What makes your products unique for an overseas market?

1.

2.

3.

Why will international buyers purchase the products from your company?

1.

2.
3.

How much inventory will be necessary to sell overseas?

1.

2.

3.

Exercise:

Decision Point: These products have export potential.

YES

NO

PLANNING

What is the purpose of completing this workbook?

You know that you want to see your company grow through exporting.

Five reasons it will be worth your time and effort:

1. Careful completion of this workbook will help evaluate your level of commitment to exporting.
2. The completed workbook can help you evaluate your product's potential for the international trade market.
3. The workbook gives you a tool to help you better manage your international business operations successfully.
4. The completed workbook will help you communicate your business ideas to persons outside your business and can be an excellent starting point for developing an international financing proposal.
5. Businesses managed are more successful when working from a business plan.

Can't I hire someone to do this for me?
No! Nobody will do your thinking or make decisions for you. This is your business. If the business plan is to be useful, it must reflect your ideas and efforts -- not those of an outsider.

Why is planning so important?
The planning process forces you to look at your future business operations and anticipate what will happen. This process better prepares you for the future and makes you more knowledgeable about your business. Planning is vital for marketing your product in an international marketplace. Any firm considering entering into international business transactions must understand that doing business internationally is not a simple task nor one for the faint of heart. It is stimulating and potentially profitable in the long-term but requires much preparation and research prior to the first transaction.

In considering products for the international market, a business needs to be:

1. Successful in its present domestic operation.
2. Willing to commit its resources of time, people and capital to the program. Entry into the international market may take as long as two years to generate profit with cash outflow during that period.
   
3. Sensitive and aware of the cultural implications of doing business internationally.

Developing a business plan helps you assess your present market situation, business goals, and commitment which will increase your opportunities for success.

What's the bottom line for me if I do the plan? Research shows that small business failure rates among new businesses are significantly lower for new businesses that have developed a business plan.

Isn't planning just for the big companies? Planning is important for any organization that wants to approach the future with a plan of action. The future comes whether you are prepared for it or not. A business plan helps you anticipate the future and make well-informed decisions because you have thought about the alternatives you will be facing.

How often do I have to do this?
A plan must be revised as needed, at least once a year. Planning is a continuous process. You will be surprised how much easier it is to develop a business plan after the first time. Plus, after a revision or two you will know more about your international business market opportunities to export products.

GOAL SETTING

Determining your business goals can be a very exciting and often challenging process. It is, however, a very important step in planning your entry into the international marketplace. The following exercise is intended to help you clarify your short and long-term business goals.

STEP 1: Define long-term goals.

1. What are your long-term goals for this business in the next 5 years? Examples: increase export sales by ___% annually; develop country cultural profiles.
2. How will the international trade market help you reach your long-term goals?

STEP 2: Define short-term goals.

1. For your international business, what are your first year goals? Examples: attend export seminars, select a freight forwarder.
2. What are your two-year goals for your international business products/services?

STEP 3: Develop an action plan to reach your short-term goals by using international trade.

INDUSTRY ANALYSIS

STEP 1: Determine your industry's growth for the next 3 years.

Talk to people in the same business or industry, research industry-specific magazines, attend trade fairs and seminars.

STEP 2: Research how competitive your industry is in the global markets.

Utilize the National Trade Data Bank (NTDB), obtain import/export statistics from the Bureau of the Census, and contact the U.S. Small Business Administration (SBA) or the U.S. Department of Commerce (DOC) district office in your area.

STEP 3: Find out your industry's future growth in the international market.

Contact the SBA or the U.S. Foreign & Commercial Service (US & FCS) district office and contact a DOC country or industry desk in Washington, D.C.

STEP 4: Research federal or state government market studies that have been conducted on your industry's potential international markets.

Contact SBA, your state international trade office, a DOC country or industry desk in Washington, D.C.

STEP 5: Find export data available on your industry.

Contact your SBA or DOC district office.

YOUR BUSINESS/COMPANY ANALYSIS

STEP 1: Why is your business successful in the domestic market? What's your growth rate?

STEP 2: What products do you feel have export potential?

STEP 3: What are the competitive advantages of your products or business over other domestic and international businesses?

PROS AND CONS OF MARKET EXPANSION
Brainstorm a list of pros and cons for expanding your market internationally. Based on your product and market knowledge, determine your probability of success in the international market.

Industry/Product:

Pros	Cons
1.	1.
2.	2.
3.	3.
4.	4.
5.	5.
6.	6.
7.	7.
8.	8.
9.	9.
10.	10.
11.	11.
12.	12.

PROBABILITY OF SUCCESS

0% 25% 50% 75% 100%

MARKETING YOUR PRODUCT
Given the market potential for your products in international markets, how is your product unique?

1. What are your product's advantages?
   

2. What are your product's disadvantages?
   

3. What are the competitive product's advantages?
   

4. What are the competitive product's disadvantages?
   

5. What are the needs that will be filled by your product in a foreign market?
   

6. What competitive products are sold abroad and to whom?
   

7. How complex is your product? What skills or special training are required to:
   1. Install your product?
   2. Use your product?
   3. Maintain your product?
   4. Service your product?

   
   

8. What options and accessories are available?

   
   

9. Has an aftermarket been developed for your product?

   
   

10. What other equipment does the buyer need to use your product?

    
    

11. What complementary goods does your product require?
    

12. If your product is an industrial good:
    1. What firms are likely to use it?
    2. What is the useful life of your product?
    3. Is use or life affected by climate? If so, how?
    4. Will geography affect product purchase, for example transportation problems?
    5. Will the product be restricted abroad, for example tariffs, quotas or non-tariff barriers?

13. If the product is a consumer good:
    1. Who will consume it? How frequently will the product be bought?
    2. Is consumption affected by climate?
    3. Is consumption affected by geography, for example transportation problems?
    4. Will the product be restricted abroad for example tariffs, quotas or non-tariff barriers?
    5. Does your product conflict with traditions, habits or beliefs of customers abroad?

STEP 1:
Select the best countries to market your product.

The U.S. Small Business Administration and the United States and Foreign Commercial Service may be of assistance in providing product market analysis. Since the number of world markets to be considered by a company is very large, it is neither possible nor advisable to research them all. Thus, your firm's time and money are spent most efficiently by using a sequential screening process. The first step in this sequential screening process for the company is to select the more attractive countries for your product. Preliminary screening involves defining the physical, political, economic and cultural environment. Rate the following market factors in each category.

1. Select 2 countries you think have the best marketpotential for your product;
2. Review the market factors for each country;
3. Research data/information for each country;
4. Rate each factor on a scale of 1-5 with 5 being thebest; and
5. Select a target market country based on your ratings

MARKET FACTOR ASSESSMENT	COUNTRY/RATING	COUNTRY/RATING
Demographic/Physical Environment: Population size, growth, density Urban and rural distribution Climate and weather variations Shipping distance Product-significant demographics Physical distribution and communication network Natural resources Political Environment: System of government Political stability and continuity Ideological orientation Government involvement in business Attitudes toward foreign business (trade restrictions, tariffs, non-tariff barriers, bilateral trade agreements) National economic and developmental priorities Economic Environment: Overall level of development Economic growth: GNP, industrial sector Role of foreign trade in the economy Currency: inflation rate, availability, controls, stability of exchange rate Balance of payments Per capita income and distribution Disposable income and expenditure patterns Social/Cultural Environment: Literacy rate, educational level Existence of middle class Similarities and differences in relation to home market Language and other cultural considerations Market Access: Limitations on trade: high tariff levels, quotas Documentation and import regulations Local standards, practices, and other non-tariff barriers Patents and trademark protection Preferential treaties Legal considerations for investment, taxation, repatriation, employment, code of laws Product Potential: Customer needs and desires Local production, imports, consumption Exposure to and acceptance of product Availability of linking products Industry-specific key indicators of demand Attitudes toward products of foreign origin Competitive offerings Local Distribution and Production: Availability of intermediaries Regional and local transportation facilities Availability of manpower Conditions for local manufacture

Indicators of population, income levels and consumption patterns should be considered. In addition, statistics on local production trends, along with imports and exports of the product category, are helpful for assessing industry market potential. Often, an industry will have a few key indicators or measures that will help them determine the industry strength and demand within an international market. A manufacturer of medical equipment, for example, may use the number of hospital beds, the number of surgeries and public expenditures for health care as indicators to assess the potential for its products.

What are the projected growth rates for the two countries selected over the next 3-5 years?

STEP 2:
Determine Projected Sales Levels

What is your present U.S. market percentage?

What are the projected sales for similar products in your chosen international markets for the coming year?

What sales volume will you project for your products in these international markets for the coming year?

What is the projected growth in these international markets over the next five years?

STEP 3:
Identify Customers Within Your Chosen Markets

What companies, agents or distributors have purchased similar products?

What companies, agents or distributors have made recent requests for information on similar products?

What companies, agents or distributors would most likely be prospective customers for your export products?

STEP 4:
Determine Method Of Exporting

How do other U.S. firms sell in the markets you have chosen?

Will you sell direct to the customer?

Who will represent your firm?

Who will service the customers needs?

STEP 5:
Building A Distributor or Agent Relationship

1. Will you appoint an agent or distributor to handle your export market?
2. What facilities does the agent or distributor need to service the market?
3. What type of client should your agent or distributor be familiar with in order to sell your product?
4. What territory should the agent or distributor cover?
5. What financial strength should the agent or distributor have?
6. What other competitive or non-competitive lines are acceptable or not acceptable for the agent or distributor to carry?
7. How many sales representatives does the agent or distributor need and how often will they cover the territory?

8. Will you use an export management company to do your marketing and distribution for you?

YES NO

If yes, have you developed an acceptable sales and marketing plan with realistic goals you can agree to?

YES NO

Comments:

SUPPORT FUNCTIONS
To achieve efficient sales offerings to buyers in the targeted markets, several concerns regarding products, literature and customer relations should be addressed.

STEP 1:
Identify product concerns.

Can the potential buyer see a functioning model or sample of your product that is substantially the same as would be received from production?

YES NO

Comments:

What product labeling requirements must be met? (Metric measurements, AC or DC electrical, voltage, etc.) Keep in mind that the European Community now requires 3 languages on all new packaging.

When and how can product conversion requirements be obtained?

Can product be delivered on time as ordered?

YES NO

Comments:

STEP 2:
Identify literature concerns.

If required, will you have literature in language other than English?

YES NO

Do you need a product literature translator to handle the technical language?

YES NO

What special concerns should be addressed in sales literature to ensure quality and informative representation of your product?

STEP 3:
Identify customer relations concerns.

What is delivery time and method of shipment?

What are payment terms?

What are the warranty terms?

Who will service the product when needed?

How will you communicate with your customer? . . . through a local agent, telex or fax?

Are you prepared to give the same order and delivery preference to your international customers that you give to your domestic customers?

YES NO

MARKETING STRATEGY
In international sales, the chosen "terms of sale" are most important. Where should you make the product available at your plant: at the port of exit, landed at the port of importation or delivered free and clear to the customer's door? The answer to this question involves determining what the market requires, and how much risk you are willing to take. Pricing strategy depends on "terms of sale" and also considers value-added services of bringing the product to the international market.

STEP 1:
Define International Pricing Strategy.

How do you calculate the price for each product?

What factors have you considered in setting prices?

Which products' sales are very sensitive to price changes?

How important is pricing in your overall marketing strategy?

What are your discount policies?

What terms of sales are best for your export product?

STEP 2:
Define promotional strategy

What advertising materials will you use?

What trade shows or trade missions will you participate in, if any?

What time of year and how often will foreign travel be made to customer markets?

STEP 3:
Define customer services

What special customer services do you offer?

What types of payment options do you offer?

How do you handle merchandise that customers return?

SALES FORECAST
Forecasting sales of your product is the starting point for your financial projections. The sales forecast is extremely important, so it is important you use realistic estimates. Remember that sales forecasts show the expected time the sale is made. Actual cash flow will be impacted by delivery date and payment terms.

Step 1:
Fill in the units-sold line for markets 1, 2, and 3 for each year on the following worksheet.

Step 2:
Fill in the sales price per unit for products sold in markets 1, 2 and 3.

Step 3:
Calculate the total sales for each of the different markets (units sold x sales price per unit).

Step 4:
Calculate the sales (all markets) for each year - add down the columns.

Step 5:
Calculate the five year total sales for each market - add across the rows.

SALES FORECASTS - FIRST FIVE YEARS
1 2 3 4 5 Market 1
Units Sold
Sale Price/Unit
Total Sales

Market 2
Units Sold Sale Price/Unit
Total Sales

Market 3
Units Sold
Sale Price/Unit
Total Sales

Total Sales
All Markets

COST OF GOODS SOLD
The cost of goods sold internationally is partially determined by pricing strategies and terms of sale. To ascertain the costs associated with the different terms of sale, it will be necessary to consult an international freight forwarder. For example, a typical term of sale offered by a U.S. exporter is cost, insurance and freight (CIF) port of destination. Your price includes all the costs to move product to the port of destination. A typical cost work sheet will include some of the following factors. These costs are in addition to the material and labor used in the manufacture of your product.

• export packing
• forwarding
• container loading
• documentation
• inland freight
• consular legalization
• truck/rail unloading
• bank documentation
• wharfage
• dispatch
• handling
• bank collection fees
• terminal charges
• cargo insurance
• ocean freight
• other misc.
• bunker surcharge
• telex
• courier mail

Step 1:
Fill in the units-sold line for market 1, 2, and 3 for each year.

Step 2:
Fill in the cost per unit for products sold in markets 1, 2, and 3.

Step 3:
Calculate the total cost for each of the products - (units sold x cost per unit).

Step 4:
Calculate the cost of goods sold - all products for each year - add down the columns.

Step 5:
Calculate the five-year cost of goods for each market - add across the rows.

COST OF GOODS SOLD - FIRST FIVE YEARS

                                        1    2    3    4    5


Market 1

     Units Sold

     Sale Price/Unit

          Total Sales
Market 2
   
  Units Sold
     Sale Price/Unit

       Total Sales

Market 3

     Units Sold
 
    Sale Price/Unit

          Total Cost

Cost of Goods Sold All Markets

Step 1:
Review the expenses listed on the next page. These are expenses that will be incurred because of your international business. There may be other expense categories not listed -- list them under "other expenses."

Step 2:
Estimate your cost for each expense category.

Step 3:
Estimate any domestic marketing expense included that is not applicable to international sales.

Step 4:
Calculate the total for your international overhead expenses.

EXPENSE COST	Market 1	Market 2	Market 3	Total Yr 1
Legal Fees Accounting Fees Promotional Material Travel Communication Equip/Telex Advertising Allowances Promotional Expenses (e.g., trade shows, etc.) Other Expenses Total Expenses Less Domestic Expenses Included Above, if any Total International Start-up Expenses

PROJECTED INCOME STATEMENT - YEAR 1 to 5, ALL MARKETS You are now ready to assemble the data for your projected income statement. This statement will calculate your net profit or net loss (before income taxes) for each year.

Step 1:
Fill in the sales for each year. You already estimated these figures; just recopy them on the work sheet.

Step 2:
Fill in the cost of goods sold for each year. You already estimated these figures, just recopy on the work sheet.

Step 3:
Calculate the Gross Margin for each year (Sales minus Cost of Goods Sold).

Step 4:
Calculate the Total Operating Expenses for each year.

Step 5:
Calculate the Net Profit or Net Loss (Before Income Taxes) for each year (Gross Margin minus Total Operating Expenses).

PROJECTED INCOME STATEMENT - YEAR 1 to 5, ALL MARKETS

1 2 3 4 5 International Sales
Cost of Goods Sold
Gross Margin

International Operating Expenses:
Legal
Accounting
Advertising
Travel
Trade shows
Promotional Material
Supplies
Communication Equipment
Interest
Insurance
Other

Total International Operating Expenses

BREAK-EVEN ANALYSIS
The break-even is the level of sales at which your total sales exactly covers your total costs and operating expenses. This level of sales is called the Break-Even Point Sales Level (BEP sales).
In other words, at the BEP sales level, you will make a zero profit. If you sell more than the BEP sales level, you will make a net profit. If you sell less than the BEP sales level, you will have a net loss.
The worksheet will calculate your BEP sales level for any year of operations. The steps listed below will assume that you are calculating the BEP sales level for Year 1.

Step 1:
Fill in your Total Sales, Total Cost of Goods Sold, and Total Gross Margin for Year 1 on the following page.

Step 2:
Calculate the Gross Margin percent using the formula which is given on the work sheet. The Gross Margin percent tells you what percentage of each dollar of sales results in Gross Margin.

Step 3:
Fill in the Total Operating Expenses for Year 1.

Step 4:
Calculate the BEP sales level using the formula which is given. Your need to reach this level of sales just to break even.

Note: In addition to a break-even analysis, it is highly recommended that a profit and loss statement be generated for the first few actual international transactions. Since there are a great number of variables relating to costs of goods, real transactions are required to establish actual profitability and minimize the risk of losses.

STEP 1:
Total Sales: $
Total Cost of Goods Sold: $
Total Gross Margi:n $

STEP 2:
Total Gross Margin: $
Gross Margin %: $
Total Sales: $
Gross Margin % = 0. (Leave the Gross Margin $ in a decimal format. The format is 0.347 - not 34.7%).

STEP 3:
Total Operating Expenses: $

STEP 4:
Total Operating Expenses: $
BEP Sales Level: $
Gross Margin %: $
BEP Sales Level: $

TIMETABLE
This is a worksheet that you will need to work on periodically as you progress in the workbook. The purpose is to ensure that key tasks are identified and completed to increase the success of your international business.

STEP 1:
Identify key activities
By reviewing other portions of your business plan, compile a list of tasks that are vital to the successful operation of your business. Be sure to include travel to your chosen market as applicable.

STEP 2:
Assign responsibility for each activity For each identified activity, assign one person primary responsibility for the completion of that activity.

STEP 3:
Determine scheduled start date
For each activity determine the date when work will begin. You should consider how the activity fits into your overall plan as well as the availability of the person responsible.

STEP 4:
Determine scheduled finish date
For each activity determine when the activity must be completed.

ACTION PLAN
PROJECT/TASK
PERSON
START DATE/FINISH DATE

SUMMARY

STEP 1:
Verify completion of previous pages.
You should have finished all the other sections in the workbook before continuing any further.

STEP 2:
Identify your business plan audience.
What type of person are you intending to satisfy with this business plan? The summary should briefly address all the major issues that are important to this person. Keep in mind that this page will probably be the first read by this person. It is extremely important the summary be brief yet contain the information most important to the reader. This section should make the reader want to read the rest of your plan.

STEP 3:
Write a one-page summary.
You will now need to write no more than a page summarizing all the previous work sheets you have completed. Determine which sections are going to be most interesting to your reader. Write one to three sentences that summarize each of the important sections.
These sentences should appear in the order of the sections of your business plan. The sentences must fit together to form a summary and not appear to be a group of loosely related thoughts. You may want to have several different summaries, depending on who will read the business plan.

INTERNATIONAL BUSINESS PLAN SUMMARY:

PREPARING AN EXPORT PRICE QUOTATION
Setting proper export prices is crucial to a successful international sales program; prices must be high enough to generate a reasonable profit, yet low enough to be competitive in overseas markets. Basic pricing criteria - costs, market demand, and competition - are the same for domestic and foreign sales. However, a thorough analysis of all cost factors going into a cost, insurance and freight (CIF) quotation may result in prices that are different from domestic ones.

"Marginal cost" pricing is the most realistic and frequently used pricing method. Based on a calculation of incremental costs, this method considers the direct out-of-pocket expenses of producing and selling products for export as a floor beneath which prices cannot be set without incurring a loss. There are important principles that should be followed when pricing a product for export, summarized below.

COST FACTORS
In calculating an export price, be sure to take into account all the cost factors for which you, the exporter, are liable.

1. Calculate direct materials and labor costs involved in producing the goods for export.
   
2. Calculate your factory overhead costs, prorating the amount of overhead chargeable to your proposed export order.
3. Deduct any charges not attributable to the export operation (i.e., domestic marketing costs, domestic legal expenses), especially if export sales represent only a small part of total sales.
   
4. Add in the other out-of-pocket expenses directly tied to the export sales, such as:
   

*These items will typically represent the cost of the total operation, so be sure to prorate these to reflect only the cost of producing the goods for export.
5. Allow yourself a realistic price margin for unforeseen costs, unavoidable risks, and simple mistakes that are common in any new undertaking.
6. Also allow yourself a realistic profit or mark-up.

OTHER FACTORS TO CONSIDER
Market Demand - As in the domestic market, product demand is the key to setting prices in a foreign market. What will the market bear for a specific product or service? What will the estimated consumer price for your product be in each foreign market? If your prices seem out of line, try some simple product modifications to reduce the selling price, such as simplification of technology or alteration of product size to conform to local market norms. Also keep in mind that currency valuations alter the affordability of goods. A good pricing strategy should accommodate fluctuations in currency.

Competition - As in the domestic market, few exporters are free to set prices without carefully evaluating their competitor's pricing policies. The situation is further complicated by the need to evaluate the competition's prices in each foreign market an exporter intends to enter. In a foreign market that is serviced by many competitors, an exporter may have little choice but to match the going price or even go below it to establish a market share. If, however, the exporter's product or service is new to a particular foreign market, it may be possible to set a higher price than normally charged domestically.

QUOTE PREPARATION
An Export Costing Worksheet that may guide you in preparing export price quotations follows.

EXPORT COSTING WORKSHEET
Reference Information 1. Our Reference
2. Customer Reference
3.Customer Information:
3. Name
5. Cable Address
4. Address
6. Telex No.
7. Fax No.

Product Information:
SIC Code:
8. Product
9. No. of Units
10. Net Weight (unit)
11. Gross Weight
12. Dimensions ___ x___ x___
13. Cubic Measure ____(sq.in.)
14. Total Measure
15. H.S. No.

Product Charges:

16. Price (or cost) per unit ______ x units _____Total__________
17. Profit (or markup)
18. Sales Commissions
19. FOB FACTORY PRICE

Fees-Packing, Marking, Inland Freight:

20. Freight Forwarder
21. Financing Costs
22. Other charges
23. Export Packing
24. Labeling/Marking
25. Inland Freight to
26. Other charges (identify)
27. FOB, PORT CITY PRICE (EXPORT PACKED)

Port Charges/Document

28. Unloading (heavy lift)
29. Terminal
30. Other (identify)
31. Consular Document (if required)
32. Certificate of Origin (if required) 33. Export License (if required)
34. FAS VESSEL (OR AIRPLANE) PRICE

Freight

35. Based on ________ weight _________ measure
36. Ocean ___________ Air ____________
37. On Deck _________ Under Deck _____
38. Rate ____________ Minimum ________ Amount _________

Insurance

39. Coverage required _________________
40. Basis ___________ Rate____________ Amount _________

41. CIF, PORT OF DESTINATION PRICE

WORKSHEET

EXPORT PROGRAMS & SERVICES
This worksheet helps you identify organizational resources that can provide programs and services to assist you in developing your international business plan and increase your export sales.

ORGANIZATIONS SERVICES

• SBA
• USDOC
• SBDC
• Trade Assoc
• University
• World Trade Ctr
• CommCollege