Opening up your business structure to a borderless playing field is a step that you may have already taken, or have at least considered in your future plan. International trade can be very lucrative, but it is always necessary to properly consider the many financial, logistical and administrative components in maximising your business import and export profits.
1. Consider purchasing power parity
Successful international business products equate to those that are purchased in an offshore market and sold for a higher price. Sounds simple, doesn’t it? However, maximising profit also means taking into account variable factors such as the best exchange rates ie. taking advantage of favourable purchasing power parity whilst it is on the table.
Therefore, it’s all about when you purchase, and also when you sell. Keeping abreast of relevant live data, such as these cba exchange rates will help keep your finger on the trigger in formulating strategic pricing decisions.
2. Reduce currency exchange risk
Following on from this, it is also necessary to protect your profit margins from currency exchange risks. Take this example: you are transferring money to and from Australia. The Australian dollar has a floating exchange rate, so its value can rise and fall from day to day. Therefore, controlling exchange risk in this situation is critical.
You can guard against fluctuations through provisions offered by financial institutions such as Forward Foreign Exchange, Currency Options and Flexible Forwards. These type of contracts allow you to have some kind of standardised control over price agreements — regardless of where the exchange rate sits at any given time.
3. Review payment methods
Financial terms have an even bigger role to play in influencing healthy profit margins. This is because disparate charges are associated with the main payment methods for import/export trade, such as Letters of Credit, Cash in Advance, Documentary Collections, Open Account and Consignment Options.
Your choice of payment will determine the expenses incurred. Logic dictates that there are no umbrella rules to govern this kind of decision making, rather — it is about assessing every transaction on an individual basis.
4. Accurately factor in labour and supply costs
It’s important to keep a firm handle on all costs (especially hidden costs) when running an import/export business. This includes accurately factoring in labour costs. To calculate labour costs you will need to estimate the amount of time that it will ordinarily take you to complete a task and then multiply it by the hourly rate of your salary/the salary of your employees.
You must also gauge your supply costs. The terms for who pays for which costs (and where ownership transfers from seller to buyer) are referred to as Incoterms. Make sure you always reference Incoterms formulated by the International Chamber of Commerce when making any adjustments to your supply chain.
5. Educate yourself about relevant taxes and tariffs
Irrespective of who holds the legal responsibility for freight/ import duties etc. you must always abide by a framework of regulations (and their associated costs) in global trade. This includes taxation and tariffs. The rate of taxation is largely dependant on location, the value of goods and the classification of the product being transported.
If you are feeling out of your depth with the intricates of the customs process you can employ a Customs Broker to help you navigate all the documentation and transactions involved. This can help to alleviate some of the stress associated with foreign ‘red tape’ — something that can be very hard to understand (especially for the uninitiated).
6. Continue to customise products for niche markets
In order to make the best returns in international business you will need to remain adaptable. Be willing to continuously customise your product range in order to capitalise on target markets that your competitors have not yet identified. This affords you with a distinct advantage of having pricing remain in your control (as it is less likely to be impacted by oversaturation).
Make sure you know your target markets like the back of your hand. Move with the times and stay on top of key trends in international business and their indicators, such as demographic shifts, growing emerging markets and innovation.
7. Capitalise on transfer of technology
Expanding from this point, it is pertinent to pay particular attention to regions with accelerated levels of technology transfer. This refers to the process by which commercial technology is disseminated to governments and businesses around the world, with one of the major flow-on-effects equalling a boosted economy. Therefore, placing yourself in these markets is likely to be advantageous to your business.
8. Focus on building relationships
There is a lot to be said for financial efficiency in the import/export business, but that doesn’t mean you should overlook the interpersonal side. Connecting with other cultures can mean breaking down the language barrier and taking the time to build trust. Communicating in person and observing local customs can go a long way to secure loyalty — a key ingredient in the longevity of any successful enterprise.