hysical distribution and transportation alternatives Your transport alternatives

We have said that one of the key distribution decisions you will need to make is how you will physically move your goods from your factory to the foreign customer (i.e. your choice of transportation method), and who will help with this (the transportation intermediary). In this regard, there are essentially four transportation alternatives available to you. They are: 1. Air transportation- One of the major ways of transporting goods overseas and especially well suited for small, light-weight and high-value goods. 2. Sea (or marine) transportation- the most common transportation method for the majority of goods moving overseas from South Africa and especially so for bulky and heavy goods. 3. Rail transportation- Clearly not appropriate for overseas transportation, but is common for moving goods into Southern Africa, as well as from the inland cities such as Johannesburg and Pretoria to the ports in South Africa. The differences in railway guages means that our railways cannot reach deep into Africa. 4. Road transportation- Road is the major competitor to rail transportation within South Africa and Southern Africa. Road transportation is also not appropriate for

overseas transportation, but is the main means of transporting goods deeper into Africa.

There are other transportation alternatives used elsewhere in the world

In other parts of the world, you may come across alternative transportation methods. Barges are common in Europe and the US; camels, horses, donkeys and other pack-animals are often used to reach far-away places in the Sahara desert, places in South America and in Asia; bicycles are often the 'last mile' means of transportation in Asia; while human-power is sometimes used in third-world countries.

Courier companies
In recent years, courier companies have begun to play an increasingly important role in distribution. In the past, courier companies were seen as 'parcel' companies. The collected a small parcel or package from your office and delivered it to some distant address (either in the same country or in some other country). The major players such as DHL, FedEx and UPS have become so good at their business and have built up such a massive logistical infrastructure that they can now deliver pretty much anything, anywhere. Today courier companies are striving to become the logistics arm or partners of companies who don't want to get bogged down with logistical issues. Through outsourcing, companies can reduce the cost and risk associated with the task of distribution. This is especially so in the case of exporting, and you may want

to discuss with one or more courier firms how they might be able to help you with your export distribution. Although a courier company could be seen as another transportation alternative, they, in turn, make use of air, sea, road and rail services to deliver the goods.

Transportation intermediaries - transport representatives

Once you have decided on how to transport your goods to the end user, you also need to decide on who will handle or facilitate the transportation for you. Obviously, you could do it yourself and many medium-to-large export firms do have managers who look after their respective international logistics. They generally liaise and interact with the representatives of airlines, shipping companies, the railways (i.e. Spoornet), or individual road hauling firms. After all, these representatives of the transportation companies are there to help you choose the best transportation alternative to meet your export needs and will gladly advise you on how to overcome many of the problems you are likely to face.

Transportation intermediaries - freight forwarders

Notwithstanding their help, you may still want to turn to a freight forwarding company to look after these transportation matters for you. This may be a wise decision if you are not a regular or experienced exporter. Freight forwarders make their livilihood from faciliating the

logisitics surrounding the movement of goods domestically and internationally. They usually have international partners that will handle the overseas component of the logistics on their (and your) behalf, and they normally offer and door to door services, thus taking a lot of the stress and problems associated with international logistics off your hands. The use of freight forwarders is perhaps is the most common way of facilitating international trasnportation.

Transportation intermediaries - customs clearing agents

Your freight forwarder (or your firm) may also make use of a customs clearing firm on the 'other side' to ensure that your goods are cleared through customs quickly and effortlessly. Customs clearing is can become a nightmare and there are firms that specialise in this service. They normally have a good working relationship with the customs authorties in the target country and they know the laws and rules intimately. They may even have an account with the customs authority and may be able to offer you payment terms that will help your cash-flow problems (although you should not expect this facility for the start they will usually only offer you this facility after years of trading with you).

Transportation intermediaries versus distribution intermediaries

In the case of market-entry and in-market distribution, you will also make use of intermediaries such as import agents, distributors, wholesalers, or even retailers. These intermediaries clearly have an impact on not only your overall distribution strategy, but also impact on the physical distribution of your goods. However, they are different from the transport intermediaries mentioned above, as these distribution intermediaries also have a marketing function to fulfil and have more direct and greater impact on your distribution activities. The transportation intermediaries (transport representatives, freight forwarders, clearing agents, etc.) are more faciliators of the distribution proces have less of a direct impact on your marketing strategy.

The whole channel concept

Some manufacturers, particularly of industrial products, need only be concerned with the problem of distribution channels between nations (market-entry channels) because their products are sold directly to the end-user, i.e. another company or a government organisation. However, other manufacturers face the additional problem of distribution within the foreign market. Where this is the case, the manufacturer should be concerned with the entire distribution channel (i.e. the whole channel), from producer to final buyer, whether an industrial end-user or consumer.

Unfortunately, exporters who trade with a large number of markets frequently think that their task has been accomplished once they have delivered their goods to the foreign importer. They consequently ignore the subsequent distribution channels that link the importer with the final purchaser, with the result that less than optimal profits are achieved.

Preparing an export budget for your firm Revising your initial budget
You will recall that have already allocated a small budget in step 4 of the export planning process for your export activities to date. The purpose of this intial budget was to enable you to do the research and planning that is required to develop a viable export marketing strategy for your firm. Even this step - step 8 - still falls within the scope of this initial budget. However, the time has come to prepare a more substantial and longer-term budget to support your export endeavours. Once you have complete step 8 and outlined your export marketing strategy, you will then begin to put this strategy to work and will need more money to do this.

Your budget must match the time frame of your export strategy
Your export budget should prepared with a time frame in mind. If you believe that it will take 2-3 years to establish

your exports, then you need a budget to support your export activities over this period. It is no use expecting to take three years to develop your export market, but then to budget only for one year. At the end of this year your money will inevitably run out and you will almost certainly have to find more money. However, your firm's circumstances and priorities may have changed and it may be difficult to set aside more money for your export activities for the next year (or two) at this time. This means that the focus will shift away from exports, resulting in the ultimate demise of your export endeavours. It is crucial, therefore, to allocate a realistic budget for your exports for the time period it will take you to establish your exports.

Possible budget items

The budget should include money for the following activities:
Export staff

You need to budget for at least one, but probably more staff that will be allocated to handling the firm's export activities. Even if you plan to do this yourself, you need to attach a cost to your time, especially if it will take time away from your management or work activities (which it surely will). You may argue that you will do the export development work after hours and in the evenings, but this seldom is feasible. Exports require a lot of attention and you will find yourself spending more time on your export activities and less on your other work responsibilities. If you neglect your day-to-day work, you may find that your

business suffers as a result. It is wise, therefore, to consider appointing an export admininstrator; someone that can take care of most of the export activities that you will be required to do. Not only do you need to budget for this person, but you should also allocate a cost to (and budget for) your own time that will spend on d eveloping your firm's exports. This need not be a senior position - only someone reliable and hardworking that is interested in international affairs and has some international 'commonsense' (e.g. knows where countries are located and has perhaps travelled overseas and or has some interest in international affairs). It is really important that the person you choose is good; this person will in some instances need to be able work on their own initiative and must be self-driven. They may have to do some administrative work, some online research, communicate with intermediaries, trade associations and potential customers, organise trips abroad and perhaps even arrange participation in an overseas trade fair. As your exports begin to grow, you may need to appoint additional staff. For example, you may want to appoint a export marketer who will help you develop your export markets and you may need someone to focus on the export logistics, and still another to concentrate on export payments, assuming that your exports grow large enough to warrant this staff.
Export resources

Creating a small export department will mean that need to allocate space for the department even if it is only for one person. Allocating space underpins the idea of an 'export department' and gives legitimacy to your firm's export endeavours. You will need a computer, a fax machine, a telephone, a printer, a photocopy machine and other tools of the trade. Fast internet access is essential (perhaps an adsl line) and your telephone and fax lines must be able to dial international. You also need to set budget aside for international communications - phone calls, faxes and courier services.
Export travel

It is very difficult to develop export markets without travelling abroad. Overseas buyers normally will want to meet the people they do business with and travelling abroad shows commitment on your part. It also gives you the chance to better understand the market you will be operating in and perhaps to participate in a trade exhibition. It is difficult to say how many trips you will need to undertake, but at least one is essential. I believe two trips a year is probably adequate and desirable, and even more may be necessary depending on the markets you are concentrating on and the products you are marketing.
Export marketing expenses

This will be one of your biggest outlays. You need to budget for brochures, redevelopment of your website, a promotional CD perhaps, as well as for other promotion materials (printing of new internationally-orientated business cards, for example). Don't forget, you may need

to translate these materials into other languages and this can be very expensive. The budget for the any trade fairs also falls under marketing, but because we see trade fairs as being so important, we highlight this expense separately below.
Participation in a trade exhibition

A trade exhibition as we have said is an excellent way of marketing and introducing your product to the foreign marketplace. I believe that participating in an suiable exhibition will generate a lot of good publicity for your firm and is one of the best marketing avenues available to you in exporting. Trade fair participation is not cheap, however - see the section on trade fair budgets. I would also only participate in a trade fair once I have done some preliminary marketing to raise the awareness of my firm. It is likely, therefore, that trade fair participation may come in the second or third year of my export schedule.
Additional export research

Your research activities never stop and you need to allocate some money for this research. It may be as simply as buying one or two international research reports that have already been compiled about the global market for your sector, or it may mean undertaking more specific marketing research to establish specific customer requirements or trading opportunities/impediments. You may also want to build up an export trade library and buy export directories and similar publications.
Export logistics

Once your exports begin to grow, you will need to budget for freight forwarding, insurance and other logistical and documentary matters. Clearly, these costs form part of your export costing and are worked into the export price. You may, however, need to allocate a substantial sum to pay upfront for these expenses, especially the first time. Thereafter, they becoming a typical cost item.
Product redevelopment expenses

We have pointed out that it is highly likely that you will need to do some redevlopment of your product to meet international requirements. This may involve additional R&D, production-line adaptations, creating and printing new labels, developing new packaging, etc. Some of these changes may be very expensive and you will need to allocate a budget to undetake them initially even if you expect to recoup your expenses from your exports eventually.

Outlining an implementation schedule for your export activities Time frames and schedules are key to the successful implemention of export strategies
An important part of your export strategy is setting the time frame for undertaking the various marketing tasks you have set for yourself as part of the strategy. Without an implementation schedule, your strategy is endless and

doomed to failure as you will inevitably put off things for later. A schedule will force you to do the tasks you have set for yourself by a certain date.

The schedule needs to be flexible and regularly revisited

Clearly, not every task will always be achievable within the time frame you have set for yourself and there may be many impediments and delays that you encounter. For this reason, you should revisit your export plan regularly revising both the strategy and the implementation shedule with any new developments affecting your export activities in mind.

What should be in the schedule?

As every firm will face a different set of export tasks, it is difficult to provide a generic export schedule. However, we can suggest the following:

When will your export strategy be read for implementation? Do you need to adapt your product, packaging and labelling in any way and if so, how long will this take and by when should it be ready? By when will your export price list be complete and published? By when do you need your export brochure/catalogue or any other marketing material ready? By when will your website need to be ready for exports?

When is the next suitable exhibition taking place in your target market? Is this exhibition an annual one and will you take place each year? When do you plan to go abroad again? Will you go abroad once or twice each year? When is the most suitable time to go abroad and will you link your travel abroad to an exhibition? When will you appoint an export assistant? By when do you expect to get your first order?

It is suggested that you work on a three-year time frame. You should not be over confident of generating export sales much before the end of the second year. Strive towards obtaining your first order towards the latter part of year two and generate further sales (a) from other clients and (b) from your first client in year three. Bear in mind that in countries such as Japan it may 5-10 years before you manage to pentrate this market. Set yourself realistic time frames therefore!

Preparing and presenting your export plan It is essential to formulate your exporting strategy in a written document - the export plan
As with your export research report, you need to formulate your export strategies in a clear way, accompanied by a budget and time frame. This written document becomes your export plan. Within the plan will be outlined your

export strategies. It is essential that you commit your thoughts to paper. Trying to run an export business off the top of your head, is sure to lead to failure. A written plan:

Is likely to bring clarity to your export actions, enabling you to explain how you link your planned actions to market and customer needs It brings a degree of formality and seriousness to your export endeavours (if you aren't serious enough to prepare a plan, you can't be serious about exporting!) Is more likely to be approved by management and encourage them to commit the necessary resources (capacity, financing, staff, etc.) to developing exports Can be used at banks and other institutions to obtain finance Provides a common frame of reference for all involved in the export activities of the firm (e.g. directors, production managers, finance managers, human resources, export staff, yourself, etc.) Serves as a benchmark for measuring success Is dynamic and can change to adapt to varying cicumstances

Preparing the export plan

The export plan, like the export reseach report, needs to be prepared as a formal report. The proposed outline of this report can be viewed here. The plan should be professional laid out and several copies made for distribution to all relevant parties (directors, managers of human resources, finance, production, etc., as well as to

export staff). Support the content of the report with graphs, tables and photographs to enhance reading.

Presenting the export plan

If you are the owner of your own business, it is unlikely that you will need to present the report for approval, but you may want to present the report to obtain your staff's support and to give them some direction as to where you hope to take your new export endeavours. In a larger company where you are in charge of exports, you may have to present the report to obtain management's commitment and financial support. You may also need to present the report to your bank in order to obtain additional financing and so both the report and your presentation needs to be of a high standard. Whatever your position, a formal, written plan is key to the future success of your export endeavours.

Obtaining approval for your export plan You need written approval before moving on
Before you can move on to implement your export strategy, you need formal approval of your export plan. It is not enough to to accept a verbal or implied approval. This will almost certainly lead to problems down the line. The best means of obtaining this approval is to present management or your board with a preprepared statement of approval which says that they have considered your

export plan and hereby give their approval to the plan and agree to commit the resources outlined in your plan to the firm's export endeavours. The plan should also commit you to some action and should therefore indicate briefly (as a summary of what is in the actual plan) what you intend to achieve, by when, how much it will cost, when you you expect to achieve your first sale and by when you expect to recoup your investment in exports.

You may be required to revise the plan

If management are not prepared to approve the plan, then they should indicate what they want changed or agree to abandon the firm's export endeavours - you will not succeed without this approval! A reluctance to sign the approval document is already an indication of a reluctance on their part to move into exports. If they have valid comments or suggests or concerns, that's fine. Go back and revise your plan addressing these issues. The firm may not have the cash available to support your export endeavours and may first require to source external financing for the export venture. Or there may be other problems they foresee. Once you have addressed these, adjust the export plan accordingly. Indicate in a covering letter what you have done to address their concerns and what you have changed in the export plan itself. Again, seek their approval and ask them to sign the statement of approval. They may raise further issues, which, as long as they are reasonable , you may need to address. There may be a bit of backwards and forwards in terms of returning to revise the export plan and then going back to

management to seek approval for it. After the third or fourth time, however, if you still haven't obtained approval, you may want to suggest to them that there are simply too many concerns or problems and that they should consider abandoning their export drive (notice I say 'their export drive' - you should from the start make this 'their' initiative; this will encourage them to take ownership, which you will need if you are to succeed).

I am the person that decides!

What do you do if you are the owner of the business; you have prepared the export plan yourself and theoretically, there is no further approval you need; you decide, after all. We nevertheless recommend that you prepare a short statement indicating your commitment to executing the export strategy as outlined in your documented export plan. This commitment needs to be documented as a short statement supporting the exectuion of the export strategy and should be made available for the relevant persons who will be involved in your export activities (e.g. production manager, finance manager, etc.) to see, so that they can prepare themselves and also commit themselves to the firm's export endeavours. Giving your written commitment to your export plan and making this known to others in the firm, simply re-enforces your seriousness to developing your export business.

Step 9: Obtaining finances/resources for your exports Why do you need finance?
OK, your export plan is in place and you are ready to start. Perhaps the first step on the road to export is to give consideration to how to finance your exports. We said right at the beginning that exporting is a complicated and expensive process. It requires time, considerable planning, extensive research (much of it overseas), highly skilled staff, product adaptations, international travel, expensive international promotions, management involvement, etc. At the same time, your prices (and margins) are often keener in export markets and your payment terms may mean that you only get paid in 30, 60, 90 or 120 days (even longer where capital projects are involved). Together this translates into high expenses and slow income. Cash-flow is often a major problem facing the smaller exporter.

When do you need financing?

You will need financing almost from the moment you decide to get into exports. These financing requirements can be divided into four parts (the first three are the precontract phases, while the last stage is the post-contract phase): 1. Financing to get you through steps 1 to 6 of our export process- At this early stage, very little financing

is required. You may need to do some research on the Internet and spend some time with your planning and SWOT analysis. Your expenses are more related with the time you need to put into the planning and preparation process than with actual outlays on travel, research, promotion, etc. You should be able to cover these financing outlays yourself. 2. Financing to help you with your export marketing research efforts (step 7)- This is the stage where you take a lot of time and effort to select your target countries and to better understand the target market you wish to enter. Your expenses will probably be related to a failry extensive desk-research effort (which may involve buy various trade magazines, directories, newspapers and other sources of information), as well as at least one visit to the target market where you may spend a week or more researching the market from within, speaking to industry associations, chambers, potential buyers and, more than likely, visiting a trade fair or two. If you plan your research carefully, you may be able to achieve all of your in-market research goals in one visit. A second visit may, however, be desirable, while larger companies may want to acquire the services of professional research agencies which would push up the price considerably. It is very difficult to estimate accurately what a trip like this would cost, but a realistic estimate would be between R25 000 and R50 000 for ten days to two weeks of in-market research. At this poitn you may already need to consider finding financing for this research (the DTI provides

assistance to smaller exporters for their in-market research efforts). 3. Financing to help you implement your export plan (step 8)- Based on the research you have done, you will prepare an export plan. Thereafter, your next step is to implement this plan - this is where you are now! This is another expensive step in the export process. This will involve promoting your products over the Internet, via direct mail, through advertisements in trade magazines, taking part in one or more trade fairs and visitng potential buyers. It is highly unlikely that you will be able to achieve your objectives without visiting the market in question. Indeed, it is suggested that you will need to undertake at least two or three visits to the market before your marketing has any effect (if at all). The cost of these trips could easily amount to R25 000 per trip, with three trips costing you R75 000 or more. Add to this the advertising you have done, then it is not unrealistic to consider spending R100 000 to R120 000 during this phase of the export process. 4. Financing to help you achieve your contractual obligations (steps 9-18)- Assuming that your marketing effort has paid off and you have secured a contract. Your next step is to produce the goods, package and label them, ship them off to the customer, provide the agreed-upon service and wiat for payment. This is perhaps the costliest part of the whole process and is very difficult to estimate. It may cost you hundreds of thousands to millions of rands. This will be the stage where your financing needs are

the most acute. It is also likely that this will only take place about two years or so from starting down the road of exports and you may find that you have already spent R100 000 to R250 000 (and more) to secure the order.

What are your financing options?

Banks- There are a number of sources of financing. The most common source remains the banking institutions. In this section, we will deal with how you should approach your bank for assistance with financing.Click here to learn more. The Department of Trade and Industry- At the same time, the Department of Trade and Industry also provides various incentives to assist exporters and small businesses with their export and business operations - we examine these as well.Click here to learn more. Payment methods as a means of financing exports- In exporting there are also different payment methods or options that you can follow and each payment option has different implications for your cash-flow - we examine these payment options as a source of financing.Click here to learn more. Payment terms as a means of financing exportsPayment terms has to do with the contractual requirments that you negotiate with the foreign buyer and has to do with the method of payment (discussed above), when you will be paid (incorproating any

credit terms you may extend to the buyer) and for what you will be paid.Click here to learn more. Pricing as a financing mechanism- The price that you charge for a product also has an impact on the money you earn and the financing you require. We therefore examine pricing as a means of financing.Click here to learn more. Cashing in on export receivables- If the foreign buyer owes you money, you can turn these 'receivable' into cash.Click here to learn more. Foreign currency loan- Although not a common source of financing for the avergae exporter in South Africa, a foreign currency loan is worth considering for large-scale capital products.Click here to learn more. Alternative sources of financing- Finally, there are several alternative sources of financing that you might want to consider, including getting finance from the Industrial Development Corporation, obtaining overseas financing, getting help from the buyer, your suppliers and even from your intermediaries.Click here to learn more. Export risk- The question of export risk also affects your financing requirements. After all, the lower your risk, the more likely the banks will be to finance your operations. We therefore take a look at export risk as a means of lowering your finance risk. Export risk is a multi-faceted topic which discuss in a separate section.Click hereto learn more about export risk. Related to the issue of export risk, is the question of exchange rate risk and we also look at how you

should deal withexchange ratesin your export dealings.

Bank financing
One of the most common ways of financing exports is by obtaining credit from commercial banks (much like you would finance your domestic activities). Although this tends to be a traditional source of finance, most smaller exporters complain that banks are not very receptive to their financing needs and are far too bureaucratic in their procedures. Bank credit also tends to be relatively expensive. You may want to read more about dealing with banks.This credit may be in the form of an overdraft that you negotiate with the bank or it may be a loan for a specific project, although prefer not to finance individual orders as they prefer to establish an ongoing business relationship with customers. Although many entrepreneurs may complain that getting financing from a bank is like drawing blood from a stone, the reality is that banks are the key source of exporting financing the world round. Banks are not reluctant to provide financing. Indeed, providing financing or credit is one of the main ways for them to earn income for themselves. At the same time, banks do not want to simply throw their money away and so they take great care in considering and analysing the requests for financing that they receive from prospective exporters. In so doing they take many factors into consideration.

To begin with, they look at the business history of the company asking for financing. If you have had a rocky relationship with your bank and have struggled to pay back money in the past; or if your business is currently struggling to make ends meet, then do not expect a openarmed welcome. Your bank will require considerable convincing that you will make a success of this venture. If this is your first time venture into exports, your bank may be more reluctant to assist you (or will at least want considerable assurance of your likely success). Your bank is certainly not likely to give you money unless you can show the thought and effort that you have put into this venture already. They will want to know:

What research have you done? What plans have you made (they will almost certainly want to see your export plan)? What makes your product so special? Why have you selected this particular country? Who have you spoken to? How will you market your product? What sales/profits do you expect and how long will it take to achieve these sales?

Do not view these expectations in a negative light. If you can convince your bank of your case, then you stand a good chance of success. If your plans are not thought through, are very thin, or are unrealistic, expect a frosty reception from your bank. The best is to go back to the drawing board and do your planning properly.

If, on the other hand, you are able to put a clearly thought throughexport planon the table that shows the research you have done and the export plan you intend following, and if this plan is realistic, the banks will almost certainly consider it favourably. Be particularly realistic about what you hope to achieve, the sales you will achieve, the profits you will make, the time it will take and the effort involved. Banks know exactly how difficult exports are. Indeed, our suggestion is that if you do not have a well-formulated export plan on paper, forget about approaching your bank!

Payment methods as a means of financing

As in the domestic market, there are many different ways of receiving payment for goods sold to buyers. The payment method you use may have a significant effect on the financing you require and the level of risk to which you are exposed. We will now discuss the most common payment methods in exporting:

Open account Payments in advance Documentary collections Documentary credits

Open account
This is an agreement you would really only enter into with a very good client - one that you trust. With an open account, you agree to supply the goods to the importer and, once you have done so, you then invoice the buyer. Once the buyer receives the invoice he or she effects payment. There may be some credit terms associated with an open account. In other words, you will agree with the buyer that he/she only needs to pay say 30 days after receiving your invoice. With an open account, you, as the exporter, carry all the risk associated with the sale. You may need to arrange financing yourself to pay for the credit period, but banks may be reluctant to finance you solely on the strength of the open account as they have no guarantee that the importer will pay. Instead you may have to offer other forms of guarantee.

Payments in advance
This is certainly the most preferred form of payment from the exporter's point of view. Unfortunately, importers are seldom willing to pay for goods in advance. However, if you are in a very strong negotiating position (for example, you are the only supplier of the goods or the only company that has stock currently), you may be able to negotiate payment in advance for all or part of the shipment.

Alternatively, an understanding importer may be prepared to pay for part of the contract price in advance as evidence of goodwill. This provides you with some security that you will be paid and helps to fund the cost of your production and shipping. At the same time, it allows the buyer the opportunity to check the quality of the goods before parting with the rest of their money. This will need to be negotiated with the importer. With payment in advance, you have no risks and bear none of the financing costs. There is no additional cost to you beyond the costs involved in any export transaction. Payment or part payment in advance is typically used for low value sales to individuals or new customers. Payment in advance is also common when selling over the Internet. If you wish to buy a book from Amazon.com, you would by credit card and only once you have paid, would the books be dispatched to you. It is a realistic alternative payment method for small exporters that sell rather unique items such as art work, and most overseas buyers will be willing to use this method of payment because the amounts involved are small (and hence, the risk is small). For any individual transaction, the most appropriate method will depend on the level of risk involved, how strong your negotiating position is and how the cost of financing compares for you and your customer.

Documentary collections What are documentary collections?

Documentary collections allow you to keep control of the goods and to raise additional finance as a result. How documentary collections work is that an overseas bank, acting on your bank's behalf, will only release the documents necessary for your customer (i.e. the importer) to take possession of the goods once they formally accept the terms of a bill of exchange. In accepting the bill of exchange, the customer essentially pays the overseas bank (i.e. they essentially "buy" the bill of exchange from the bank).

Bills of Exchange
A bill of exchange is a written document in which 'the drawer' requires 'the drawee' to pay a specified amount. The drawer is yourself, while the drawee is usually your customer. If a bill is being used with a term letter of credit, the drawee is usually the customer's bank. The bill will also specify when payment should be made. The bill can either request immediate payment ('at sight' or 'on demand'), or it can specify payment at a later date ("the term"), e.g. 30 days after sight. The terms of the contract usually require your customer to accept the bill immediately if it is for later payment. New exporters may find that their bank is not

initially willing to provide them with term bills. Drawees become legally liable for payment once they 'accept' (agree to pay) the bill. A bill is often referred to as a "draft" until it has been accepted. 'Negotiable' bills specify payment 'to the order of' the drawer. This allows you to negotiate the bill, ie to sell it to another party (usually your bank) to raise finance. Should the bill of exchange not be accepted by the customer, you will still have ownership and control of the goods, but in your customer's country. There is also a risk that you may not receive payment, unless the bill has been guaranteed by the bank ("avalised"). You will have a strong basis for pursuing legal action against the customer but in the foreign country. The bill of exchange can specify any credit period that you negotiate with your customer. For example, you can specify immediate payment, payment after a set number of days, or payment by a given date. Once the bill has been accepted, you can use the bill of exchange to raise additional finance. You should be aware that in the case of a bill of exchange, both your bank and the overseas bank will charge a commission. Your terms of trade with your customer must specify who is responsible for paying these charges. Documentary collections are typically used for exports to customers you have an established relationship with.

Documentary credits What are documentary credits?

Also known as "letters of credit", documentary credits are amongst the safest methods of payment in exporting (other than payment in advance). Your customer arranges a letter of credit with its bank (known as the "issuing bank"). In this letter of credit will stand all the instructions that you must follow and documentary evidence that you must supply to a correspondent bank (which will normally be specified in the letter of credit) in South Africa (known as the "advising bank"). The correspondent bank may be a different bank to your own bank (it is in fact the local representative of the overseas issuing bank) As the exporter, you will receive a copy of the letter of credit, as will the South African advising bank.

The need for accurate documentary proof

Once you have dispatched the goods and attended to all of the requirements as stated in the letter of credit, you can approach the advising bank and submit to them all of the documentary evidence (such as the shipping documents, phytosanitary documents, inspection certificates, etc.) of what you have done and as is set out in the letter of credit. If your documentary evidence exactly meets the

requirements as specified in the letter of credit, the advising bank will pay you as per the payment instructions (which may be immediately, or after a certain period of time or on a specific date). It is important, however, that the documentary evidence that you supply to the advising bank meets the requirements as stipulated in the letter of credit, exactly - even a spelling mistake or a missing comma can result in their refusal to pay.

Irrevocable and confirmed letters of credit

Letters of credit can also be both "irrevocable" and/or "confirmed" An accurate and authentic "irrevocable" letter of credit, verified by your own bank (not necessarily the advising bank), carries little credit risk. As long as your documentary evidence is accurate and in keeping with the requirements of the letter of credit, the issuing bank guarantees to pay you within the stipulated time. By "confirming" the letter of credit, your bank agrees to pay you even if the issuing bank (i.e. the importer's bank) defaults. Your bank will charge a commission based on how creditworthy the issuing bank is. Of course, letters of credit can also be unconfirmed and/or revocable, but these options are much more risky for you as the exporter because it allows the importer (or his/her issuing bank) to renege on the payment.

Term credits and financing

A letter of credit can specify any credit period that you have negotiated with your customer. A letter of credit that that incorporates a payment after a given term (e.g. 60 days) is known as a term credit. A term credit will require you to finance the gap between delivery and payment. You can use a valid, current letter of credit to raise additional finance in a similar way to using a bill of exchange. Your customer is responsible for the cost of issuing the letter of credit. The customer may want to pass these costs on to you as part of the price negotiation. Documentary credits are typically used for exports to customers you have not sold to before and for customers and countries that present particular credit risks.

Introduction to EMIA Scheme Background

EMIA stands forExport Marketing and Investment Assistanceand this is aincentivescheme introduced and administered by Government (or more specifically the Department of Trade and Industry - thedti). The purpose of assistance under the EMlA scheme is to partially compensate exporters for costs incurred in respect of activities aimed at developing export markets for South African products and services abroad, and to recruit new

foreign direct investment and potential customers into South Africa. Any assistance provided under the EMIA schemes is at the absolute discretion of the Deputy Director-General ofTrade and Investment South Africa(TAISA) whose decision will be final. No EMIA incentives are available for the period from 10 December up to and including 10 January of each year. EMIA is broadly divided into two types, individual participation schemes and group schemes. Individual ParticipationIncentive Schemes administered by TAISA include:

Individual Exhibitions(lE) andIn-Store Promotions(lP) Primary Market Research(PMR) andForeign Direct Investment(FDI) Individual Inward-Bound Missions(IIBM)

Group ParticipationIncentive Schemes administered by TAISA include:

Group Inward Buying Trade Missions(IBM) Group Inward Investment Missions(IIM) National Pavilions(NP) Outward Selling Trade Missions(OSM) andOutward Investment Recruitment Missions(OIM) Sector-specific assistance(SSAS)

To learn more about each of these incentive schemes, please click on the link in question as provided above!

Please note, as the ExportHelp web portal is about exporting, we do not provide any information on this site about the various investment schemes mentioned above. If you are interested in any of these investment schemes, please click on the link provided above and you will be redirected to thedti web page dealing with that particular scheme.

Definitions and terminology Export Trading House (representing at least three (3) SMME's)
An Export Trading House (ETH) is a business, which focuses on the promotion of export-trade through the marketing of products from different manufacturers. The principle/manufacturer is not allowed to participate simultaneously with the agent.

Commission Agent (representing at least three SMME's)

A Commission Agent (also referred to as Commissioned Agents) must have an agency agreement with a local manufacturer for the promotion of the manufacturer's products in the export market. The principle/manufacturer is not allowed to participate simultaneously with the agent.

Small, Medium and Micro-Sized Exporters SMME's

SMME's must be privately, independently or co-operatively owned and managed, and must comply with any two (2) of the following quantitative criteria:

Total annual turnover must be less than R40 million Total assets excluding fixed property must be less than R15 million Less than 200 full time employees

Historically Disadvantaged Individuals/Businesses - HDI's

For a business to qualify as a historically disadvantaged business, it must: be an SMME where at least 51 % of the business must be owned by black person(s), women or disabled person(s) of South African nationality.

Other businesses
Businesses that do not qualify under the definition of an SMME as stipulated by the EMIA Scheme, are classified as "other businesses".

Registered exporters
Exporters registered with the Commissioner of Customs & Excise.

Qualifying organisation
This term refers to Trade and Industry organisations representing specific sectors of trade and industry recognised by EMIA. These organisations include:

Chambers of Commerce, Industry Associations, Provincial Investment Promotion Agencies (PIPA's), Export Councils, Official Provincial and Local Government Trade Promotion offices (TPO's), and thedti.

Value-added product
A value-added product is a product by which a South African business has increased the value of a product at each stage of its production, excluding initial costs such as indirect labour, commissions, taxes, and duties, but including raw materials and packaging, by 35%.

Subsistence allowance
The daily subsistence allowance is provided in order to cover aportionof the hotel accommodation, meals, taxi fares, telephone calls, etc. No supporting documents are required with the claim.

HS-Code (Harmonised System Code)

This is an international code used to classify products that are imported and exported. The HS-Code (Harmonised System Code) or Tariff Heading can be obtained from Customs & Excise - Telephone: (012) 4224000.

Black-owned Enterprises
The balanced score card approach is followed when making reference to an entity's affirmative action record and status:

Black Owned Enterprise - 50.1% ownership and substantial management control Black Owned Entity - 25.1% ownership and substantial management control Black Women Owned Entity - 25.1% representation by a black woman within the black equity and management portion

Exhibition costs in respect of National Pavilions

The exhibition and related costs in respect of National Pavilion relates to all costs for services provided by exhibition organisers, sub-contractors and experts to ensure the success of National Pavilions.

Preferred Service Providers (PSP's)

These are suitably qualified firms who have been appointed, through a tender process, to provide specialised air travel and freight forwarding services to EMIA customers. In order to improve the efficiency of the scheme and to provide increased service levels to customers, thedti has appointed Preferred Service Providers (PSP's), to the EMIA scheme, for the provision of Travel and Freight Forwarding services.

Third-party payments
For the purposes of EMIA, third-party payments will be defined as a payments made by an entity other than the approved company or by any person other than the

proposed traveller or director of the company. Any invoice or proof of payment made in another name will be construed to be a third-party payment.

ndividual Exhibition Assistance Scheme Introduction

The objective behind this EMIA scheme is to provide financial assistance to individual exporters to exhibit products at recognised/established exhibitions abroad where Trade and Investment South Africadoes notprovide for a National Pavilion. Exhibitions are a powerful way of promoting your firm and its exports in foreign markets. Not only do foreign exhibitions enable you to promote your firm/products, but you can use the exhibition as a way of gaining valuable insight and research data about your prospective target market. Recognised and established international exhibitions represent a one-stop shop where both buyers (importers) and sellers (exporters) come together to meet and to do business, with everything taking place under under one roof. This saves you the hassle and cost of having to travel around a particular country or region and because the exhibitors are also displaying their products, you get a chance to see what the competition has to offer. We at ExportHelp strongly recommend that you consider making use of foreign exhibitions and trade fairs as a way of entering a potential marketplace. To this end, we therefore suggest that you also read up on the following:

Selecting potential foreign markets to enter Using exhibitions and trade fairs to promote your firm and its products in foreign markets

More detail about the scheme

To learn more about the individual exhibition assistance scheme, click on the following links: 1. General qualification criteria 2. Limitation of assistance provided 3. Scheme-specific financial criteria 4. Steps involved in applying for assistance 5. Application documentation and other requirements 6. Claim documentation and other requirements

Eligible enterprises and general qualifying criteria Eligible enterprises

The following enterprises qualify for assistance on condition that they have been operating and trading for more than one financial year:

South African manufacturers of products including SMME, HDI and other owned businesses who are registered with the South African Revenue Services (SARS)

South African Export Trading Houses representing at least three (3) SMME or HDI-owned businesses South African Commission Agents representing at least three (3) SMME or HDI-owned businesses South African Export Councils, Industry Associations and Joint Action Groups representing at least five (5) South African entities

General qualifying criteria

The Department of Trade and Industry expects applicants to meet the following qualifying criteria:

Export readiness of applicant Export/production performance of the applicant Export/marketing competence of person visiting the foreign country Potential available/accessible production/export product capacity Extent of export marketing planning Type of product for export and local sales performance Level of labour absorption, location and technological requirements Industry in which the venture operates or is planned Submission of general and specific qualifying documentation and adherence to general and specific criteria as stipulated per each EMIA offering