Commercial Correspondence and Commercial Negotiation
Commercial correspondence plays a key role in establishing a long-lasting business relationship if you are doing international trade in any field. The specific writing structure of “Commercial English” besides using business and legal terms, along with its importance as a special branch of English language must be noticed by companies.
There is a close connection between the structures of commercial correspondence (such as emails, formal mails …) and value creation for an organization; sometimes lack of a coherent set for commercial correspondence in a company, leads it to an unsuccessful business.
As a formulation, commercial correspondence always follows of a specific order. For example a “Purchase Procedure” uses a completely different format of communication compare to a “Sales Procedure”; another example is that having deep specialist knowledge of business and legal terminology could end in a successful trade in terms of documents, packaging standards, production cycle, transportation type, delivery time, insurance and so on.
ADLI Export Management Co. will help your organization through its trade target by utilizing the correct framework of commercial correspondence and legal requirements of international trade; it will also help you develop your work to overseas by an appropriate style of mailing with insurance companies, foreign banks and transportation companies concerning any kind of purchase, sales, credit building, payments and agency establishment.
For more information please call our office.
Export Market’s Research and International Marketing
1- Export Market Research
Obviously the first step of exporting goods is to have a thorough understanding of international markets. In order to gain this view toward different markets, some factors are analyzed such as: the import & export volume of target country, market trend, market capacity, foreign and domestic rivals, political & economic & social & geographic & legal & technological & environmental situation, the accordance of goods with target market, similarity and differences of goods with its rivals, behavioral and psychological factors, demand volume, substitute goods and so on. The final goal of marketing research is to assess the market; and ultimately by depending on the knowledge and gathered data an export business model will be structured.
During the process of market research, first the domestic and then foreign markets might be studied. At first the principles and effective factors on export in the seller country analyzed – such as prohibiting the export of a specific product for a period of time; besides the governmental support would analyzed via some matters such as: preferred tariffs, market competition adjustment, motivating export supports, transportation analysis and others. On the other hand domestic rivals and their performance, production size, products’ quality and their international performance will be analyzed. For instance by analyzing domestic rivals, an exporter could change their sales approach which provides a competitive advantage for foreign buyers. After this step, some information which will be the starting point for international market research will be gathered and some proceedings like tariff assessment, export value assessment and export certification request will be done.
An appropriate export market research might answer the following questions:
On which direction the business could be done?
What are the challenges and solutions?
Which learning materials are needed?
How much budget will be needed?
How much time is needed?
What are the requirements?
How much time will be needed to deliver the cargo?
How is it to assess the market’s capacity?
What are the characteristics of target market?
Which approaches are used in customer deals?
How is it to manage the export risk?
What is the export pricing base?
For more information please call our office.
2-Export Marketing Process
Market Research à Market Segmentation à Target Market Selection à Positioning à Marketing Mix Decisions à Performing Actions à Controlling à Marketing
Below you might find a brief description of international marketing process:
- Market Segmentation
Market Segmentation will end in a meticulous definition of target market requirements; it includes: detailed definition of people’s needs and demands, detailed goals for marketing and sales, effective and efficient resource allocation, and finally improved marketing results. Market segmentation ends in the assignment of appropriate goods to appropriate section and following points should be noticed in this regards:
A-1) Geographical criteria: zone-city-distance from origin country
A-2) Demographic criteria: ethnicity – job – income – sexuality – life style
A-3) Behavioral variables: reaction toward a product – consuming type
A-4) Development Level: income rate and GDP – type of the economic system
A-5) Country’s resources
A-6) Country’s Infrastructure: transportation – banking system – distribution channels
B- Target Market Selection
B-1) Single Section Focus: A single product for a single market
B-2) Selective Expertise: Multiple Products for Multiple Markets
B-3) Product Expertise: A single product for all export markets
B-4) Market Expertise: Multiple products for a single market
* Sieving method for target market selection
In this model a general analysis is done and then some markets selected. Some methods such as strategic analysis, competitive analysis, demand analysis, risk analysis and benefit analysis done in this approach.
* Characteristics of a desirable target market
Political & economic stability
Powerful currency
Low inflation rate
Comprehensive and clear legal system
Powerful and big-size private sector
Developed work culture and behavior
Concordance between Government and Private sector
C- Positioning in International Marketing
Unfortunately the international image of Iranian products is not appropriate and government plays a key role in this positioning. Any seller should try to build a good image in the consumer’s mind. Price, quality and services might play a key role in building the consumers’ image of the product. A worthy buyer builds trust and value for the organization; this value creation starts from understanding consumers’ needs and some points declared to the buyer which motivates him/her to buy.
D- Marketing Mix decisions
Each business has its own aspects which create an appropriate development of a trade; gathering of these aspects called the Marketing Mix which divides in some models like 4P (Product, Price, Place and Promotion) or other models such as 7P, 8P or even 15P. A web search could help you find related concepts in this regards.
Following some points of 4P model briefly provided:
– Product:
What is my product and what are the specifications?
Which product I would like to design?
How many types of products do I have?
In which kind of packaging this product should be launched?
* Some other important factors concerning Product are: branding, product basket management, product change management readiness, new product development, accordance of product with market needs, differences and similarities with rivals, profit making for consumers and customers
– Price:
Price includes subjects such as: pricing models, effective variables on pricing, pricing barriers and price adjustment approach.
-Place:
Place includes subjects such as: third party performance, good market entry, market entry barriers, market risk management, logistics system and so on.
-Promotion:
.
Promotion could be done by agents or distributors and some proceedings like participating in fairs, catalogue designing, website designing, and product campaigns are done in this field.
E- Organize, Perform and Resource Allocation in Marketing
F- Marketing Control
Marketing control is the final step of the whole marketing process in which we recheck the prior steps and solve any failure. Some important points are like: What were our products’ failures? Was the price good? In which part we failed? At which stage we did well? How we can build a market (a step after marketing)? How did we change the market? And so on. Besides we can compare the market before and after our entry which might be useful.
The ADLI export company utilizing the best modern trade solutions and approaches by a rich insight toward commercial goals at different levels will finalize the export market research of your specific business.
For more information please call our office.
export readness assessment and business plan
The first step for any export company is the analysis of export preparation and ability to supply their products and services globally. This type of analysis includes some export preparation checklists to control the following points:
- Searching origin country’s circumstances and abilities
- Searching destination country’s circumstances and abilities
- Analyzing SWOT (Strengths – Weaknesses – Opportunities – Threats)
- Providing an purposeful approach in order to develop business after export market’s analysis
The export preparation analysis not only provides the basics for a successful overseas business, but also can prevent a company from an unfortunate quick failure in the market; also it explores strengths and weaknesses of a company to incorporate best data for planning strategies and managing export risks.
The Export Business Plan is a descriptive document of a company’s business. It uses Export Market Research’s data and consists of detailed reports concerning: technical analysis, market research, opportunities and threats’ analysis, SWOT analysis of competitors, market entry methods, export finance, export insurance, risk management, export pricing, situation analysis, cultural analysis, economic situation, demographics and …
If you do business without having a business plan, so you are challenging yourself to face with the roaring stormy waves of global business ocean! In this case the success could rarely happen and these companies will be much more exposed to business failure.
For more information please call our office.
Pricing of Exporting Goods
There is a huge difference between pricing for exporting goods and pricing for domestic sales and it requires complete attention to the principles and models of pricing. At first notice that the requirements of buyer should be in accordance with goods specification and maybe the buyer needs some changes which cost extra money for the seller. Besides the seller should be informed of the buyer’s type (a distributor, wholesaler, a third party seller or a retailer) and the timing of delivering goods to seller. For example if the same goods are available at the price of 10$ for a consumer, then the seller will not base an 8$ price for them. In this case 2 scenarios will happen; the goods will not be sold at the target market or the buyer will be abandoned from the market. Notice that a reasonable expected interest is an important factor in sales procedure.
*One of the steps of market research is estimating a price in the target market which provides required information for the seller.
There are some possibilities when issuing a proforma invoice; maybe the prices will change or the proforma invoice will be expired and a new one substitutes. Note that in case of a price increase possibility, do not agree to issue a proforma invoice with a long expiry date; in this situation it is better to negotiate with the seller and inform them about the matter.
Concerning the changing market situation, try to study all the effective factors in pricing – such as expenses – and if nothing is overlooked or forgotten, then issue a proforma invoice. However, sometimes changes in the price happen against buyer’s request, which are normal.
The Rule of Incoterms in Pricing
One of the key subjects which affect pricing is Incoterms rules. Of course when using FOB term, delivery costs are not same as using DDP term. The Incoterms affect transportation fee, insurance fee, and unloading and clearance charges in the destination, which all should be analyzed.
The Rule of Buyer’ Needs in Pricing
Some requests from the buyer side could affect goods pricing – such as a special packaging, unassembled parts or performing some stages of production in the destination country. Also this can happen concerning quality; for instance two similar goods with different qualities might offer to the buyer. In this case the buyer could decide based on the specifications or the seller himself will set the specifications and send them to the buyer so that he/she can simply decide whether to buy the goods or not.
Usually the buyer’s decision model is as following:
Needs assessment à Research à Evaluation à Purchase Decision à Purchase Behavior
*As it could be understood from the above model, the pricing affects Evaluation and Purchase Decision.
*Anyway, notice to get a confirmation of the specification from buyer when selling the goods.
The Rule of Expected Profit, Profit Margin and Breakeven Point in Pricing
Paying attention to above mentioned factors, not only is the principle of a good deal but also it will leverage the discounts we give.
The Rule of the Buyer’s Goal by Entering the Target Market in Pricing
Definitely every buyer intends to prevail over their target market in the end and they could use different policies toward this goal. Notice that these policies – which are pricing goals and pricing strategy – are very important for their persistence.
Pricing Goals
– Low price aims to cause the existence of the company and increase the demand
-Increased Market Share and Increased Sales
-High price to a level which causes the goods sold with the maximized profit
–Market lead means having the biggest market share
-Having a competitive advantage against other rivals
Pricing Strategy
-Same price for all the consumers or different price for different sections of society
–Competitive price like other rivals
–A price based on the cost of the seller
–A price based on the goods value in target market
Pricing Expenses Effective factors in pricing Goods production cost Market demand Transportation cost Customer situation (retailer, wholesaler or a third party seller) Insurance cost Amateur or experienced buyer Packaging & labeling cost Buyer history in terms of buying from seller’s country Personnel wage Buyer and seller mutual history of business Port charges similar goods’ price in B2B and B2C Certifying charges Customs tariff in destination country Discount dealing with or without a preferred tariff system Warehousing purchasing volume of the buyer Currency exchange rate and commissions target market standards and adaptation of the goods with standards Documents translation charges Goods adjustments based on the buyer requirements Documents delivery charges Target market competitiveness Bill of Lading Issuance charges customer purchase power Tax & duty charges buyer’s payment method Time customs tariff customs pricing of the goods Incoterms principles Type of buyers needs |
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Risk management
International sales management always involved lots of challenges. The circumstances and principles of a worldwide business are changing frequently, thus lack of knowledge in this field could harm exporters and impose them losses; as a result all the risks must be detected in depth and their consequences must be minimized. It should be noted that trading with different countries could end in various results with different risks. For example selling a specific good to China would be different in terms of risks with selling it to Brazil.
Different types of export risk
Political risk
Legal risk
Economic risk
Quarantine risk
Exchange Rate risk
Nonpayment risk
Transportation risk
Sales risk
Rivalry risk
Act of God risk
Insurance risk
Distribution risk
| Risks are also divided into controllable and out of control risks. |
There are plenty of experts in different fields whom offer you consultancy in export risks like: Bank Foreign Currency Experts – International Business Lawyers – Transportation Companies – Customs Clearance Experts and Insurance Consultants.
| It is suggested to search for potential risks when doing market research |
For more information please call our office.
After detecting potential risks different type of them will be written down on Managing Export Risks matrix and the consequences would analyzed; then after bringing up some solutions, again the consequences would analyzed. This matrix should be updated on a daily basis and all the aspects should be studied in details. For example a new instruction could impact the buyer or the seller’s risk. This matrix will indeed help in the prioritizing of risks, so that the best solution will be applied in the right time.
| The information obtained from Export Market Research, Export Risk Matrix and Export Business Plan has interrelated effects on each other. |
Generally Managing Export Risk is a complex and expanded subject which cannot be summarized in some pages and needs a meticulous analysis; however here it is decided to briefly analyze each one of them.
Political Risk
Political risk indicates a kind of risk that is the result of regional or national political changes like: revolution, protest, closing borders of a country, goods prohibition because of political decisions, government sanctions and foreign direct investment prohibition.
Some other important cases in political risk are as following:
–Possible Changes in Government
-Administration and customs bureaucracy and goods clearance in destination country
-Press freedom
–Goods import limitations
–Tariff system and preferred tariffs
–Adjusting market competition
–Inter-country trade agreements
–Governmental support of export
–Governmental support of exporting companies
–Support of SMEs and industrial towns
–Poor infrastructure
–Gross national product
–Foreign & domestic investment
–Business relationship with neighbor country’s people
–International & regional conflicts
–Business relationship with regional and Muslim countries
Economic Risk
Economic risk is one of the important risks and the currency exchange rate fluctuations play a key role in this kind of risk. Some other important factors in this category are as following:
Three main indicators of interest rate
- A) High inflation and interest rate
اB) High economic development rate is a good sign for investment
- C) The possibility of cancelling foreign investments in case of economic indices & market fluctuations :
Strong Currency of a country
Powerful and effective private sector
Government support of private sector
Government & private sector coordination
Systems and customs affairs efficiency
Powerful financing systems such as Stock Exchange and its trend, Banks, Finance Companies, Leasing Companies
Employment rate
Monetary Policy Unemployment trend
Workforce costs
And other factors which determine the economic stability of target market
Legal Risk
There are some important items when studying legal risk such as: origin and destination customs affairs and procedures, import and export regulations in origin and destination country, required certifications and standards and obligations and limitations; so here the acceptance of international laws or origin country’s laws in the destinations country is of a great importance.
It is very common to do trade based on Proforma Invoice & Commercial Invoice but it is more rational to make a sales contract or other usual contracts in order to better manage the export risks. When binding a contract there should be a selected country’s rule under the title of “The Ruling Law” for decision making in case of any disagreement.
As it mentioned studying the destinations country’s customs affairs is very important; for example in some countries – such as India, UAE, Malaysia, Singapore, Indonesia, Russia, Bangladesh, Algeria, Egypt, Morocco, Libya, Fiji, Brazil and Uruguay – which free zones are not counted as customs territory, the goods cannot enter the customs without buyer’s permission and sometimes buyer will cleverly misuse this. So it is suggested to clear all the mutual accounts before transferring goods to these countries. Sometimes the process of goods clearance could be done by a copy of bill of lading, and the seller will carry on by delivering a copy.
Regarding Iran & Iraq’s trading affairs there has established a specific courthouse to solve related business issues which simplifies their mutual commerce.
Concerning Legal risk, notice that the more the rules and regulations in a country, so the less will be the rate of risk and investment. Transportation Risk
To manage the risk of transportation it is more logical to use a transportation company on the seller’s side or at least a transportation agent in Iran. The expansion of services of the transportation company is very important and the different services of forwarder companies must meticulously analyze.
The seller must bind a written contract with the transportation company; you are suggested to study “Transportation Arrangement” section and “Bill of Lading” section in order to get a deep view toward transportation risk subject.
| The lowest transportation price is not necessarily the best one. |
Nonpayment Risk from Customer Side
Sometimes the buyer causes some troubles regarding payment; during these decades which a lot of sanctions hit Iran’s market, nonpayment of the buyer will burden a huge loss to seller and maybe even international complaints and cases will not be possible because of lack of an agency in other countries. So it is strongly advised to make a prior validation of the buyer’s credit situation and use advance payment method or consult with export guarantee fund.
For more information please call our office.
Goods Sales and Distribution Risk
A smart exporter will analyze their goods position in the destination country’s market which will be a help to a better export decision. Concerning this there are some important matters as following:
-The quality of other rivals
-Import volume of other rivals
-Goods delivery timing to customer
-The quality of after sales services
-Society’s view toward imported goods
-Consumer’s behavior
-Required standards for the goods
. -If the goods have any kind of agent, branch and distribution center in the target market
-Purchase behaviors
-Changing possibility in the goods or packaging if required
| Analyzing mentioned items could help in rivals’ analysis in the target market |
-Providing updated materials
Safety of the Goods Risk
Because of different potential challenges it is better to handle the transportation of goods and involved people from warehouse to the destination in details; it is possible that the stowage and loading done without enough precision so there should be an agent during loading. If the transportation type is by land, then the containers which are equipped to GPS are the best option. Also try to choose a route which minimizes the possibility of any kind of environmental harm to them; for example transfer of fruit products by a tropical route requires more attention and arrangements with transportation agent. In sea routes try to choose ships with classification certificate which acts as a technical inspection certification. In some cases, using ships without this certificate will prevent you from receiving any compensation.
The export packaging is also very important and its accordance with the good itself and transport route should be checked with the buyer. In some cases, using inappropriate packaging will prevent you from receiving any compensation.
The Origin & Destination Country’s Customs Affairs
Being informed of customs affairs and procedures regarding time risk management and current costs is necessary; because there are different procedures in different ports.
Insurance Risk
Nowadays for an exporter it is better to use a domestic insurance company based on the Central Bank’s and customs regulations; so in case of any damage it is easier to receive compensation. For more information read export insurance section.
*Notice that in case of using an Iranian Insurance company make sure the issuing bank will accept it.
Act of God Risk
Some cases like natural disasters, contagious disease and other happenings which are out of control should be mentioned in Force Majeure section of the contract and the mutual responsibilities should clearly determine between two parties.
Last Point
International trade includes so much great opportunities. However SEMs and amateur people will face more risks and they should better get involved in businesses which have more opportunities than risks. Besides try to analyze every single risk with its own importance rate and make a difference between noticeable and little risks.
For more information please call our office.
Transportation Arrangement
This section provides some necessary information regarding transportation which is of a great importance for the exporter. Generally it is logical to make an agreement regarding type of transportation with buyer before loading. Indeed it should be mentioned that the best cost is not the lowest one in transportation; some cases of cooperating with poor transportation companies ended in a lot of extra charges for the exporter.
Foreign transportation hints:
- It is suggested to choose a transportation company on the side of the seller. It will help manage the exporter’s risk.
- Three copies of original bill of lading must be issued in the origin country before container’s receipt. Transportation fee – in a prepaid form or in a collect form – should be mentioned in details in the bill of lading; and the buyer is not allowed to release the containers without the original bill of lading.
- Check the safety and functionality of container with respect to its transportation history. Disinfect the container if needed.
- Try to choose containers equipped with GPS to track their route and trafficking.
- It is suggested to receive the container in Transportation Company’s yard.
- Detect the route and its details before reaching the final agreement.
- Check the payment type of transportation fee with the transportation company.
- Check the exchange rate with the transportation company.
- Check for not submitting the value added tax in export transportation fee.
- Check the possibility of switch B/L (bill of lading) with the transportation company and check the fee; and make a written agreement if required.
- Be informed of transit time
- Choose the safest route of transportation
- Be informed of ports’ congestion
- If you use transshipment along the route then necessarily you should agree on its time with the transportation company.
- If you are involved with cross stuffing along the route then necessarily you should agree on its time with the transportation company.
- Be informed of the destination ports’ procedures.
- In case of transporting food cargo use Reefer container or if necessary, put the containers below water-line which is a cooler environment.
- Check the possibility of sending the cargo to other buyers in other continents if the main buyer cancels the deal with the transportation company (a transportation company which provide services to an expanded area of the globe, is a better one); if the answer is positive, are they going to issue a new B/L for the new buyer without permission of the previous one and by the request of the shipper and charging them?
- Check the free time with the transportation company.
- It is suggested to choose a ship which holds a classification certificate.
Some useful expressions:
Demurrage: a charge payable to the owner of a chartered ship on failure to load or discharge the ship within the time agreed.
Detention: During the export phase, detention starts when the empty container is picked up from the container yard, and ends when the full container arrives at the port terminal. If the receiver holds container more than the free time, this charge will be applied on a daily basis.
Storage: Storage charges are the cost of holding a shipment at a location (warehouse, etc.) and will be on the final invoice if applicable. Storage charges may apply for a few reasons, including: Your shipment is selected for a customs exam, and has to be put into storage while waiting for Customs release.
Example – we have booked a container and only 10 days are awaiting us to receive the empty container and deliver it in full stuff form to the port. Everyday which is after the due date of delivering container to the port a detention fee is charged. Now if the full stuff container is at the port but without delivering, a demurrage charge must be paid for every single day of a full stuff container stay.
For more information please call our office.