KŌNAE AKO 4
Seminar: International Trade
HE PAEMAHI KŌWHIRINGA THE ELECTIVE PROJECT
Introduction
New Zealand has an active economy which produces a broad range of products and services. Even so, we are not self-sufficient. The New Zealand economy depends heavily both on exports to other countries and on imports from overseas. This does not mean that there is anything wrong with the New Zealand economy – it is more efficient for countries to specialise in producing what they are good at and importing what else they need.
International trade is a critical part of the New Zealand economy. This is because the only way we can continually pay for goods and services we import from abroad is by selling exports to other countries. If we only imported, eventually all our money would end up overseas!1 At the time of writing, international trade (imports and exports) contributes around 60% of New Zealand’s total economic activity.2
However, importing and exporting are not just for big businesses. Online commerce has made it much easier to reach overseas customers, resulting in a large number of small businesses pursing this option. For service-based businesses, some services can be delivered directly using the internet and, for productbased businesses, online stores make it easier for customers from all over the world to view and order products. Even so, there are many factors to think about when you are making decisions about importing or exporting. For example, there will often be customs charges and GST to be paid on imported goods, and trade in certain goods and services is restricted by law.
In this seminar, we provide an outline of what you need to consider if you decide that importing or exporting is right for your business. We also cover the use of trade clusters as a strategic tool for attracting overseas customers and promoting exports. As you read through the seminar content, keep in mind that, depending on your exporting strategy, international trade can be complex and creates risks. It is therefore important to do research before you start, and seek professional advice where appropriate.
1 We can of course borrow to buy goods from overseas, but this is not a good long-term strategy.
2 Ministry of Foreign Affairs and Trade. (2021).
Contents
This seminar covers the following topics:
Part A: Importing
• Product Identification
• Finding Suppliers
• Gaining Exclusive Rights
• Customs Brokers
• Import Regulations
• Paying for Imported Goods
Part B: Exporting
• Export Requirements
• Advantages and Disadvantages of Exporting
• Market Research
• Approaches to Exporting
• Export Plan
• Logistics
• Trade Clusters
Part A: Importing
“Global trade has advantages. For starters, it allows those of us who live through winter to eat fresh produce year-round. And it provides economic benefits to farmers who grow that food.”
– David Suzuki
As a small business owner, there may be several reasons why importing appeals to you. You may wish to:
• Be a wholesaler or distributor who imports products in bulk to sell to other businesses
• Import one or more products to sell within your retail business
• Import materials to use in the production of products
• Import equipment to use to manufacture your products
• Set up a business which assists other businesses to import goods
It is possible for any business to import goods into New Zealand as long as the goods are not on the list of prohibited imports. Some other goods, for example, some agricultural goods, will require approval before you will be allowed to import them into New Zealand. Some may not be allowed to be imported at all – this includes pirated items as well as products which do not meet certain requirements. For example, there are strict rules around the content of children’s paints to ensure they are not hazardous.
If you import goods worth more than NZ$1000 and sell your products in NZ, you need to register and have a client code and a supplier code. You also need to register for the Trade Single Window (TSW).
For more information check New Zealand Customs website https://www.customs.govt.nz/business/import/startimporting/register-as-a-commercial-importer/
Before you decide to bring anything into this country from overseas, it is important to discuss your intentions with the New Zealand Customs Service, or consult a professional adviser with knowledge and experience in importing.
USEFUL WEBSITE:
The New Zealand Customs Service website provides a list of import prohibitions.
• New Zealand Customs, Prohibited Items – https://www.customs.govt.nz/business/import/importprohibited-and-restricted-imports/.
Product Identification
The first step in importing is to decide what it is you are going to import. Obviously, you will be looking for a product that will be profitable. To begin with, you will need to consider the actual cost of the item and the demand for it amongst customers in New Zealand. However, you will also need to research the costs associated with importing the item, as well as consider the impact that changes in exchange rates will have on the purchase price. For example, if the value of the New Zealand dollar weakens, it becomes more expensive to purchase items from overseas. If this happens, your only option might be to pass this cost on to customers through selling the item at an increased price.
Finding Suppliers
Once you have identified the product you intend to sell, and the market you intend to sell it to, you need to find one or more suppliers. Depending on the product, there may be only one supplier, but for most products, there will be several potential suppliers to consider. Your research may show you need to travel overseas to find the most appropriate supplier. You might even make several visits to several different overseas suppliers before you feel comfortable committing to your first consignment. All of this affects your costs, so you will need to keep checking that importing the product will still be profitable.
A useful source of information around possible suppliers can be the embassy, consulate, or trade commission of the country or area in which your product is manufactured. Many countries also have their own trade websites that you can visit to find more information on the different suppliers in that particular country.
USEFUL WEBSITES:
• The Ministry of Foreign Affairs and Trade website contains a database of embassies and consulates, and trade commissions – http://www.mfat.govt.nz
• The New Zealand Trade and Enterprise website lists all trade commissions. These may be able to assist in finding a possible overseas supplier – https://www.nzte.govt.nz/page/our-international-team.
Trade Fairs
International trade fairs are a useful way to find out about overseas exporters. These are special events where businesses display and demonstrate their latest imported products and services. These events can provide you with an opportunity to view the quality and the different types of products businesses import. It can also be an opportunity to meet and exchange information with other small business owners.
Once you have identified possible suppliers, it is important that you collect as much information as possible about them. You will need to do this before you commit to importing their products.
As attractive as a supplier may appear, you should find out the following before committing to them:
• The price. This includes insurance and freight costs.
• The group or individual responsible for each part of the import process.
• The cost of freight and who will arrange this.
• The quantity that can be imported. This includes the minimum and maximum amount.
• The time it takes for the products to be supplied.
• How the goods will be imported.
• The cost of insurance and who will arrange this.
• When payment will be made.
TĪWHIRI:
Do not buy anything without ensuring the quality of the product first. You should never rely on the claims of the manufacturer. It is your responsibility to make sure that the product meets all required specifications and quality measures.
Ask the supplier for a sample of the product so you can personally check the quality and specifications of the product. Request a list of references (names of other customers) from the supplier, and contact these people for feedback about the reliability of the supplier and the products they supply. It is best to be given details of the businesses, and not simply a list of names and phone numbers, to help ensure the person you contact is, in fact, a customer.
Gaining Exclusive Rights
It is worth asking the supplier if you can have exclusive rights to the product in New Zealand. This means your business will be the only business in New Zealand with the rights to sell the product. For your request to be considered, the supplier is likely to want to see evidence of your market share.
TĪWHIRI:
If you are just in the initial stages of your business, the supplier may offer you a conditional ‘guarantee’ of exclusivity. This means you are only guaranteed exclusive rights to the product until another business comes along with a larger order. There is no risk in requesting exclusive rights from a supplier, so do not be hesitant to discuss this with them.
Customs Brokers
Customs brokers act for importers and exporters. They are responsible for arranging the collection of imported goods from Customs and the shipment of goods for export. They can save a lot of time, money, and stress.
Customs brokers can:
• Prepare documents for goods to be exported or imported,
• Advise on the best methods and routes for transporting goods,
• Calculate any Customs duties and GST payments,
• Organise insurance cover for goods, and
• Manage claims for loss or damage of goods.3
Many brokers also provide a freight forwarding service. That is, they can arrange for delivery of imports to the business’s premises and the collection of products for export. The freight forwarder can provide advice on cost-effective methods of moving freight and offer guidance on the import regulations and requirements in destination countries.
3 Aotahi Ltd. (2014).
TĪWHIRI:
If you use a Customs broker in the clearance of imported goods through Customs, any declarations or actions they take on are considered to also have been made by you. As the importer, you may be liable for any penalties or additional duties that are experienced by the broker in the clearance process as well. It does not matter whether the broker is within New Zealand or overseas as the liabilities are unaffected by their location.
USEFUL WEBSITE:
The Customs Brokers and Freight Forwarders Federation of New Zealand (CBAFF) has further information on customs brokers and their roles and responsibilities including freight forwarding.
• Customs Brokers and Freight Forwarders Federation of New Zealand (CBAFF) – http://www.cbaff.org.nz.
Import Regulations
Once you have a good idea of what you would like to import, you need to find out what regulations apply to these goods when you import them to New Zealand. For example, you may need approval from Customs to import the item.
The most common regulations affecting importers are quarantine restrictions and customs duties. Customs duties are a special tax on imported goods paid to the Government. They are also often called ‘tariffs’ or ‘import duties’.
DEFINITION:
Customs Duties (tāke rawa mai i tāwāhi): Monetary payments charged to an importer of goods by the Government as a charge for bringing the goods into the country.
Business Terms in Aotearoa. (2012).
Quarantine Restrictions
Quarantine restrictions help prevent the introduction to New Zealand of overseas pests and diseases that might harm our environment and economy. In some cases, imported items might be delayed or treated in order to preserve New Zealand’s biosecurity.
USEFUL WEBSITES:
The Ministry for Primary Industries and the New Zealand Customs Service provide information on quarantine regulations around imported goods. This includes goods that may need to be fumigated before being cleared.
• New Zealand Customs – http://www.customs.govt.nz
• Ministry for Primary Industries, Importing – http://www.mpi.govt.nz/importing.
Customs Duties
Customs duties are collected from a tariff, a tax that applies to certain types of imported goods. These duties exist to protect domestic manufacturers from overseas manufacturers. In most cases, tariffs are not applied to goods that are not manufactured in New Zealand. However, goods that are of the same type as those manufactured in New Zealand (e.g. clothing and footwear) will have duty applied to them when they are imported. Customs duty is charged on the Customs value of the imported goods. This is the total value of all items in the shipment.
Calculating the Customs Value of Imported Goods
When people bring in goods from overseas for personal use, the customs value is usually the price they paid for the item (converted to New Zealand dollars). However, if you are importing for business reasons, calculating the customs value of the items is a bit more complicated.4
The primary method for calculating customs value is the transaction method. You can use this when:
• You have evidence of a sale specifically for export to New Zealand, such as a commercial invoice, contract, or purchase order.
• No relationship between you and the supplier has affected the price.
• The item’s price or sale is not subject to any condition or consideration where a value cannot be determined.
• There are no restrictions on how the buyer will dispose of or use the item, except for legal restrictions, restrictions on locations of sale, and any other restrictions that have no substantial effect on the item’s value.5
Factor to Consider:
You cannot use the transaction method for gifts, free samples, anything on consignment, anything imported by a company branch that is not a separate legal entity to the seller, or items imported under a hire or leasing contract.6
The transaction method values the item using the sum of:
• The price you paid or will pay for the item,
• Commission and brokerage fees, except buying commissions,
• The value of anything you provided for free or at a reduced cost to the seller to get the product made or sold,
• Royalties and license fees,
• Any proceeds from resale, disposal, or use that you must pay to the seller,
• The value of any materials, parts, and services used to repair or refurbish the item before importation, and
• Any transaction or shipping costs incurred before the item leaves its country of export.7
4 NZ Customs Service. (2017a).
5 Ibid.
6 Ibid.
7 Ibid.
You are then able to deduct the following costs, as long as you paid them and they are clearly separated from the price of the items (that is, they cannot be included in the price you paid the seller).
• Transport and insurance costs, incurred after the item leaves its country of export. This includes costs for transportation and insurance within New Zealand.
• Any reasonable costs related to constructing, maintaining, or getting help with the item when it arrives in New Zealand.
• Any New Zealand Customs duties or other New Zealand taxes.8
If you cannot use the transaction method, there are five other available methods which must be used in order (e.g. you can only use the third if you cannot use the second or the first, and so on). These are detailed on the following website:
USEFUL WEBSITE:
• New Zealand Customs Service, Customs Import Value: Other Valuation Methods – https://www. customs.govt.nz/business/import/lodge-your-import-entry/customs-import-value/
TĪWHIRI:
To be confident as to how your goods will be classified, and whether they will be cleared by Customs, you can apply to the Customs Service for a ruling on the classification of your goods before importing them. This ruling will be valid for up to three years from the time it is made.
Factor to Consider:
Some countries have trade agreements with New Zealand that give them preferential tariff treatment. For example, no tariffs are charged on goods that are of Australian or Singaporean origin. Tariffs on products from many Asian and South-East Asian countries, including China, are in the process of being phased out.9
8 Ibid.
9 MBIE. (2018).
Tariff Concessions
Tariff Concessions allow goods to be imported free of duty if there is no New Zealand manufacturer producing a similar or identical product. You will need to apply to the Customs Service to get a concession. To be considered, your application must include the following information:
• Information about the purpose and function of the goods,
• Illustrations, brochures, and other relevant information which describes the goods,
• Written evidence of research to verify whether similar goods are (or could be) made in New Zealand, and
• Detailed reasons which prevent the use of New Zealand manufactured goods.
USEFUL WEBSITE:
To apply for a ruling on your proposed goods, the form you need is entitled ‘C7 – Application for a Customs Ruling’. If you wish to apply for a tariff concession, the form you will need is entitled ‘NZCS 245 – Application for a Tariff Concession or a Modification of an Existing Tariff Concession’. These two application forms, as well as other documents and tariff information, are available on the New Zealand Customs Service website.
• New Zealand Customs, Tariff Documents – https://www.customs.govt.nz/globalassets/documents/ forms/form-c7-application-for-a-ruling-classification-or-duty-concession.doc
GST
In addition to any Customs duties, GST of 15% is also charged on all imported goods. This happens even though the transaction may have been made overseas.
GST is payable on the sum of the following amounts:
• How much you paid for the products,
• Customs duty payable, and
• Freight and insurance costs from transporting the goods to New Zealand.
If you've bought goods from overseas, the supplier probably will not charge you GST unless they carry on a taxable activity in New Zealand.
When you import the goods, you'll likely be charged GST on them by Customs as they come into New Zealand. You can claim this amount back if you are GST registered and are using the goods solely to make taxable supplies. When filing your GST Return, in your GST101 you need to enter that amount in the credit adjustments box. When you can claim GST paid to Customs depends on your accounting basis. If you are importing tobacco and alcohol,
you will need to pay duty and GST regardless of the amount.10 Purchases made online from overseas websites such as Amazon and eBay are still subject to the same Customs duty.
GST of 15% applies to all imported items, including anything you bought online or using a mail order catalogue. Overseas suppliers may charge GST on items sent to New Zealand consumers that are valued at NZ$1000 or less.
NZ Customs Service calculate GST based on the total of:
• how much you paid for the item, plus any international transport and insurance costs, plus any import duty.
• NZ Customs Service do not collect any duty, fees or GST unless the value of your item/shipment is over NZ$1000. This doesn’t apply to alcohol or tobacco.
Note: For duty and GST calculations, if you import multiple orders in a short time period from the same supplier and address, we consider them to be a single shipment.
USEFUL WEBSITE:
These two websites will give more information on Customs Duties, GST on Imports, and Customs Import and Clearance fees:
• https://www.customs.govt.nz/business/
• https://www.customs.govt.nz/personal/duty-and-gst/duty-and-allowances/
Customs Import Clearance
It is a legal requirement that all imported goods arriving in New Zealand are cleared through the New Zealand Customs Service. To obtain an import clearance from Customs, the importer is required to submit an electronic declaration called a ‘Customs import entry’ within 20 days of the items arriving in New Zealand (or in advance). This covers specific details about the goods that are being imported for business.
It is vital that the Customs import entry is completed accurately as it is a legally binding declaration. If you do not wish to submit this entry yourself, you can use a customs broker or freight forwarder to do this on your behalf. Otherwise, it can be done online at the ‘New Zealand Trade Single Window’ website (www.tsw.govt.nz) or using Electronic Data Interchange (EDI) software. You may need to provide additional information, such as freight bills, invoices, packing lists, or insurance certificates.
In addition to submitting a Customs import entry, the importer will also need to pay any charges due, including Customs duties and GST charges, before the goods will be released by Customs.
Paying for Imported Goods
Letter of Credit
Before the exporter ships the goods to you, they may require you to raise a letter of credit from your financial institution. This letter represents your promise to pay for the goods you have ordered. The exporter will be required to produce evidence that the goods have been shipped before payment is then made. The most common way for them to do this is to send you tracking information that you can enter on the delivery company’s website to find out the status of your shipment.
Most financial institutions treat a letter of credit as being similar to an overdraft and usually set a limit on what you can import at any one time. It is uncommon for financial institutions to take security on the goods covered by the
10 New Zealand Customs. (2017).
letter of credit and most will require other forms of collateral. There is a cost associated with raising a letter of credit so over time, when a level of trust has been developed, importers and exporters often come to other arrangements. For example, an importer could pay a deposit for the goods when the exporter has stated the goods have been shipped and then pay the rest of the money once the goods have been received.
Transport Costs
You will need to consider the costs of international freight charges when you are importing goods. These apply whether your goods are sent by sea (charged per cubic metre) or by air (charged per kilogram). There are often other charges for which you may be liable, such as a port services charge.
Note that, given the high shipping or transport costs, it is often more cost-effective to place larger orders less often instead of placing smaller orders more frequently. However, this does mean that your import orders will be large and expensive.
If you use a freight forwarder, they will give you advice around freight options and costs. A customs broker may also be able to assist you.
TĪWHIRI:
If the supplier is responsible for freight, be aware that some suppliers may lower the price of products to attract buyers only to inflate their freight costs and overcharge customers for freight (to offset selling the product at a lower price). Suppliers can print shipping labels without displaying the actual postage cost, but this does not mean it is not possible for buyers to calculate the postage for themselves. If the freight charge seems high, discuss this with your supplier and consider negotiating to arrange freight yourself.
Insurance
You need to be clear as to who is responsible for the goods being imported, and the point at which they become your responsibility, as you will need to arrange insurance for them.
There are five important things to consider when it comes to insurance:
1. Who is the insurer? Are they a familiar company? Are they based in New Zealand? If not, where are they based? How easy would it be to file a claim if you needed to? If you need to make a claim, you would be required to lodge it with the overseas insurance company and would need to do this across time zones.
2. How much is insured? You will need to calculate the value of the shipment accurately to make sure that you are covered in the event of any loss or damage. The supplier may only provide minimal coverage.
3. When and where are you covered? It is important to note that some insurance policies only cover certain types of transport and others do not cover against goods that are stored in a warehouse. Make sure your policy covers your cargo at every point from the moment it leaves until the moment it arrives.
4. What are you covered for? Check to see if your policy excludes events such as piracy and war, which could be very costly. To avoid this, take out an ‘all-risks’ policy that covers you whatever happens.
5. What are the costs? The cost of insurance will be based on a combination of the type of goods, commercial value of the goods, method used to transport them, the origin of goods, and their destination.11
One option is for the overseas supplier to arrange insurance for you in their local currency. However, it is best you get insurance yourself to make sure you are well covered. In particular, ensure that you are covered in New Zealand dollars. This is to avoid the risk of a potential currency exchange loss which could arise if the New Zealand dollar is not performing well against the currency of the supplier’s country.
Budget
Costs associated with importing can build up quickly. It is important to include the following in your budget:
• Ex-factory wholesale price
• Freight and transport costs
• Customs broker fees
• Packaging
• Exchange rate fluctuations
• Transport insurance
• Landing charges
Discussion Questions:
• Customs duties and GST
• Other charges and levies (e.g. biosecurity levy and import entry transaction fee)
• Delivery and handling charges (within New Zealand)
• Foreign bank charges
• Local bank charges
• What are some websites you can use to identify products to import? For example, assume your business produces a beverage and you need to import bottles for this beverage. What sites could you look at to find suitable bottles to import?
• Have you ever imported anything before? If so, discuss your experience.
11 Easy Freight. (n.d.).
Part B: Exporting
“Growing our exports creates jobs.”
– Barrack Obama
Exporting is the difference between a domestic market of 5 million, and a global market of billions. As such, exporting the goods and services of your business can be an exciting prospect, albeit one that requires careful planning and consideration. Two possible motivations for choosing to export are:
• To develop a larger customer base by introducing your products to the international market.
• To expand your production as your business has increased its manufacturing capabilities.
It is important to only consider exporting when it makes sense for your business. For example, if you have limited capacity for expansion, but plenty of profitable opportunities in New Zealand, it is likely to make sense to focus on the New Zealand market and on growing your capacity. You should see exporting as a way of growing your business naturally and not something to do because you feel it is expected of a business.
Exporting can take a lot of time, planning, and preparations. Depending on the approach you take to exporting, it may also require a reasonable amount of money and a full commitment to the entire process. The good news is that there are different ways to export, with some being a lot less complicated than others. The internet has made it easier and less costly for small businesses to start selling products to overseas customers. You can sell and ship products from your web store overseas just by accepting overseas order.
Keep in mind that not all goods will sell well overseas through an online web store. For example, if people can easily buy a similar product to yours in their home country and receive it within a day or two, it is unlikely they will be willing to pay international freight charges to purchase your one and have it sent from New Zealand. In this case, if you want to pursue exporting on a large scale, you might need to do so in a more traditional way, finding retailers and distributors in the overseas market, or perhaps even opening your own retail locations. Using a fulfilment centre in the overseas market may also be an option.
USEFUL WEBSITE:
The Auckland Chamber of Commerce provides a website called ‘Exporter HealthCheck’ which you can use to identify whether you and your business are ready to export. It takes around 15 minutes to complete.
• Auckland Chamber of Commerce, Exporter HealthCheck – http://www.exporterhealthcheck.co.nz
It is best to have successfully established your business in the domestic market before attempting to export to other countries. This will provide you with valuable experience and help you to develop a proven track record of success in sales and customer service. You are more likely to attract customers overseas if you are an already established business. Success in the domestic market will also provide the cashflow you are likely to need to fund your export endeavour.
However, it is not always possible to establish your business in the domestic market, especially if your product is designed for certain markets which are not based in New Zealand.
Since exporting is extremely important to New Zealand, the government has initiatives and services to support businesses looking to export. These are offered through New Zealand Trade and Enterprise. If you are considering exporting, it is best to visit the New Zealand Trade and Enterprise website to see what assistance is available.
Export Requirements
There are certain requirements if you export products to other countries. The requirements may be different for different products and different countries. Ministry of Primary Industries provides guidelines for exporting different products and how to get an export certificate.
Export certificates are used to give official, government-to-government assurance about products exported from New Zealand.
DEFINITION:
New Zealand Trade and Enterprise (NZTE) (Tauhokohoko Aotearoa): A New Zealand government agency with roles and responsibilities relating to economic development. Services offered include, but are not limited to, services for business start-ups, services for exporters and investment services.
Business Terms in Aotearoa. (2012).
• New Zealand Trade and Enterprise – www.nzte.govt.nz.
• Ministry of Primary Industries – https://www.mpi.govt.nz/
Advantages and Disadvantages of Exporting
The advantages and disadvantages of exporting are given in Figure 1.
Figure 1: Advantages and Disadvantages of Exporting12
Advantages
Increased sales from extending your market base to overseas countries where you are able to target new customers and explore exciting new niche markets.
Higher profit margins from producing on a scale that makes better use of resources (economies of scale).
Faster business growth as a result of not being confined to the New Zealand domestic market.
Lower risk as a result of diversifying into different international markets rather than relying on New Zealand’s economic climate. Overseas customers are not likely to be affected by a local economic recession.
Exposure to new ideas, technology and processes from discovering new markets. This can help your business develop innovative products and services.
Exposure to international best practice, ideas and alternative ways of doing business from trading in the global market. This could help to improve your competitiveness both at home and overseas.
Market Research
Disadvantages
Increased costs.
Complex regulations and compliance issues.
Legal risks that may arise from operating under laws that are different from the laws in New Zealand.
Political risk as a result of trading in a politically unstable country. It is important to study these.
Expert advice and planning, including an export plan and risk management plan, can help minimise risk.
Before launching products or services in a foreign market, you need to conduct market research into how those products or services will be received. This is especially the case if you are planning to set up operations in the other country, or invest money and time in meeting with potential intermediaries. It is a huge mistake to assume that, just because a product is popular in New Zealand, it will be in demand overseas.
Your market research should help you to determine which country to export to and what region within that country. It will also provide information to help you create an export plan.
TĪWHIRI:
If you want to test a product in an overseas market before beginning large-scale exports, and if the product can be sold online, you could consider trying a test run on Amazon first. This can give you a good idea if people in that market will respond to the product. For example, if you want to export New Zealand-made teas to retailers in the United States, online sales through Amazon could help you see if they sell at all and, if so, which teas American customers like best.
12 Ministry of Business, Innovation and Employment. (2017).
Your research should cover the following points:13
• Demographics of the market, and who you will target
• Cultural differences
• Economic activity
• Political situations
• Relevant regulations in your market
• Entry requirements (check whether you are actually allowed to export your particular product to that market)
• Rules for your product (for example, there may be requirements regarding the content of your labels)
• Product liability
• Intellectual property rights
It is beneficial to visit your potential market or markets. If possible, take some product samples with you and give yourself adequate time to learn as much as you can about the setting you wish to do business in. Visiting your potential market will help you to develop relationships with your customers and allow you to personally see the foreign market, rather than relying on market reports, studies, and presentations for information.
It is important to learn about relevant social and cultural customs too. For example, gift giving is an important part of doing business in Japan, where gifts are usually exchanged at the first meeting. However, in countries such as Germany, gifts are rarely exchanged and are considered inappropriate. The exchange of business cards is also a key part of business protocol and the customs concerning this also vary. For example, in Japan it is considered highly offensive to simply accept and pocket a business card immediately without acknowledging it and nodding to indicate the business card has been read. It is also appropriate to comment on it or ask a question.14
To better understand your market, investigate the competition in the foreign market. Visit the sites (physical and websites) of your competitors in the foreign market to see how they market themselves. This will also give you an indication of the quality of the products they sell and how much they sell these for. If you do not think you will be able to sell your products at a comparable price then you will need to think of other ways to attract customers, or look at other markets to export to. It may be that your market research indicates exporting is not best for your business.
It is recommended that you consider the Australian market before attempting to export to other overseas markets. Australia is close to New Zealand and it has a similar business culture. It is also English speaking so there is no need to learn another language or pay for the services of a translator.
One way to conduct market research into overseas markets is through a service such as that provided by ConsumerThink. This service involves the use of an online database to link New Zealand businesses with more than 20 million consumers worldwide, in more than 30 languages.15 It provides a medium for exporters and consumers to hold in-market customer discussions around exporting products and it enables business owners to receive product feedback, suggestions, and information directly from the people they wish to sell their product to.
• Consumer Think – https://customerthink.com/
13 Aotahi Ltd. (2014).
14 U.S. Department of Commerce - International Trade Administration. (2017).
15 Baker. (2017).
Approaches to Exporting
In the past, exporting typically involved finding businesses overseas which will sell your product, or setting up operations in another country. However, these days you have a variety of options in regards to which approach you take, some of which involve significantly less risk than others.
Your options are:
` Website Sales. Customers overseas make purchases through your website. If you choose to follow this approach, you will need to decide which countries you will allow sales to and then ensure the associated shipping prices are on your website. Depending on the volume of sales, you may need to consider using (or setting up) a fulfilment centre in the country you are targeting – thus, instead of shipping each item sold direct from New Zealand, you will ship your products in bulk to your fulfilment centre in the other country, and then distribute them from the fulfilment centre as sales are made.
` Selling through an International Website. For example, you might set up a shop on Amazon.com or use eBay. If you sell through Amazon.com, they can take care of fulfilment, although you are still liable for making sure your products can be legally sold in the countries you are selling to. Using Amazon is discussed further in this section.
` Establishing a Presence in the Market. This involves setting up operations in the country you are exporting to. This could involve opening a retail store in that country.
` Franchising. This involves offering franchise opportunities to businesses in the overseas market.
` Using an Export Agent. This approach involves getting a sales person to sell products on your behalf in the overseas market and paying them a commission on these sales.
` Using a Distributor. Businesses that use this approach sell their products to a distributor located in the overseas market. It is the responsibility of that distributor to on-sell products to other businesses such as wholesalers and retailers.
Figure 2 highlights the differences between using an agent and using a distributor.
2: Agent vs. Distributor16
Basis for Comparison Agents Distributors
Purchase goods and re-sell them to local retailers or customers.
Ownership
Revenue Model
In-market Operations
Do not take ownership of goods.
Have a role of representative of supplier in the foreign market.
Product Sales
Paid by the supplier through commission on sales.
Exporter sets selling price with feedback from the agent.
Take title of the goods.
May sell to other wholesalers, who then sell to retailers.
Will usually provide customer support and after-sale services.
Add own margin on top of the product’s actual price.
Margin affects directly the way exporter sets products’ prices.
Exporters will often have to absorb the distributor margin.
Customers’ orders come to the exporter through the agent.
Deliver, invoice, and collect payments from the customers.
Assist with sales activities and sales network development.
Usually have smaller product ranges than distributors.
Provide more focus on products.
Exporter has more control on their sales technique.
Agent is able to be easily trained to sell exporter’s products better.
Take care of inventory – hold stock which reduces order time.
Extend credit for customers.
Help pay for and undertake marketing and promotion for products in overseas markets.
Provide back-up to exporters.
Represent and sell multiple products at the same time.
Difficult to identify distributors with complementary products.
Attention might be distracted from exporter’s product.
Difficult for exporter to control sales force and sales staff easily.
Figure
16 Salzano. (2004).
Using Amazon to Export
Amazon.com is one of the world’s largest e-commerce sites. While many products are sold by Amazon itself, it is also a platform other businesses use to make sales. This means Amazon is now one of the world’s largest logistics companies. The Fulfilment by Amazon service allows small businesses from New Zealand to easily access overseas markets. Once you register with Amazon, you are only responsible for shipping your product to one of Amazon’s fulfilment centres and listing them for sale – Amazon then takes care of the rest. The fees are typically about one-third of the sales price of the item.
You can sell your products through the Amazon website or you can sell through your own site and use Fulfilment by Amazon for the shipping. There are also other fulfilment services available if you just want someone else to organise the shipping. However, the Amazon.com website is very popular and highly trusted by customers (you can also sell on Amazon and ship goods yourself rather than using Fulfilment by Amazon).
Amazon has separate retail sites for 16 different countries, including Australia. You can sell directly to customers in those countries through those websites.
USEFUL WEBSITE:
Sellglobal is a New Zealand-based business that offers assistance to New Zealand businesses thinking about using Amazon to sell to overseas markets. Their website has a lot of useful information.
• Sellglobal – https://sellglobal.co.nz
Export Plan
Your export plan is a business plan that is developed especially for your export market. Creating an export plan is important as the strategy you use in New Zealand will not necessarily be successful overseas.
You should ensure your export plan includes the following points:
• A summary of your current business activities.
• Your objectives and goals for exporting:
• Why have you decided to pursue the export market?
• What are your expectations with exporting?
• When do you expect to regain your initial investment in export marketing?
• The financial resources of the business which are available for exporting.
• The non-financial resources of the business which you can use to assist in exporting.
• Production capacity to export.
• Market selection:
• Which countries or regional markets are you targeting? Why?
• Who are your customers (your target market)?
• Your export approach (using a distributor, website sales, etc.)
• Your export products.
• Overview of regulations you will need to comply with.
• Intellectual property.
• A marketing plan.
• Brand positioning.
• Website strategy.
• Action steps to ensure the export plan is carried out.
Intellectual Property (IP)
Intellectual property is an important part of an export plan, not only to protect your own brand and ideas, but to also ensure you are not infringing on those of others. Remember that any trade marks, patents, or designs you have registered in New Zealand only apply in New Zealand. You will need to seek protection in the country you intend to export to.
It is best to register intellectual property in offshore markets as early as possible. After all, it could be the case that, after running your business successfully in New Zealand and building a well-known brand, a business in another country may have copied your idea and legally registered a trade mark for it in their country. You would therefore not be able to use your brand when exporting to that country.
Brand Positioning
One of the key factors in determining the success of your export endeavour is brand positioning. It is not enough to simply supply a product to customers and expect them to buy it. Multinational e-commerce websites including Amazon and eBay, which ship products internationally, make it simple for customers from all around the world to purchase high-quality ‘brand name’ products for a fraction of the recommended retail price. You therefore need to have a brand which stands out from the competition and appeals to overseas markets.
Factors to Consider:
How your product should be described in packaging, marketing materials, and your website, may need to change depending on the country you are thinking of exporting it to. People in different countries may use the same word, yet understand it in different ways.
In America and many Western countries, for example, a ‘quality’ product is one that works, is well-built, and will last. But in Korea ‘quality’ indicates that it is new, so the fact that it lasts is not important. Japanese people are likely to think that a ‘quality’ product is perfect, with zero defects or imperfections. And in China, people will expect a ‘quality’ product to increase their social status.
This is not a case of different meanings of the word – no-one will say that ‘quality’ means new, or perfect, or a higher social status. Nonetheless, there is a difference in what will be considered as ‘quality’. Part of the challenge when exporting is to uncover this ‘hidden meaning’ and understand what people will think when they hear the word or phrase.
As you can see, it is not enough to simply translate your product description into the local language. It is also important to understand the cultural context, so you can make sure your description carries the message you want it to.17
When you have finished writing your export plan, take it to NZTE to see if they can help you. Note that NTZE has an office in Shanghai, so they may be able to help with making connections for you there. However, it will be up to you to bring in the business. Your export plan should consider all channels, including retail, offline and e-commerce.
Factors to Consider:
Consider that the needs and wants of people in overseas markets may be different to those in New Zealand, even if the demographics appear similar. Be prepared to modify your product or service accordingly. It is often easier (and more effective) to make changes to your product or service to accommodate the needs and wants of your overseas markets than it is to encourage people to buy something they do not need or want to buy.
Website Strategy
You will need to consider how you will adapt your website to target overseas markets. You can have a multilingual website, which is a website which offers content in more than one language, or a multi-regional website which specifically targets people in different countries. English is currently the third most spoken language on Earth and this means there are theoretically millions more customers in the world who have access to your website, but are not able to read it.18 If members of your target market do not all speak English, a multilingual website will be required.
If you have a multilingual website, one option is to have a different URL for each language version of a page. This is the option Google recommends. For example, as well as having a .co.nz extension, if you are planning on exporting to Poland, you could have a website that uses a .com.pl extension (http://www.mybusinessname.com.pl) which has all content in Polish. The alternative is to use cookies or browser settings to adjust the language shown on the page depending on the person visiting it. One problem with this is that Google may not go through all variations of the site.19
17 Sivers. (2014).
18 Accredited Language Services. (2016).
19 Google. (2018).
The process of taking a website and modifying it for another culture is known as ‘localisation’. It requires more than simply translating the words as many cultures have their own standards for design, imagery, layout, and colour.
Logistics
In this part of the seminar we briefly look at some of the logistical aspects of exporting. This includes the documentation you need to complete, as well as getting your products overseas and getting paid for them.
Export Documentation
Goods need to be cleared by Customs before they can be sent overseas. To do this, you will have to fill out an export entry. If the goods are valued at less than $1,000, you instead fill out an Electronic Cargo Information (ECI) report.
As with import entries, export entries can be lodged online at the ‘New Zealand Trade Single Window’ website (www.tsw.govt.nz) or using Electronic Data Interchange (EDI) software. Most exporters arrange for their Customs broker or freight forwarder to lodge any export clearances on their behalf as they likely already have EDI software and are familiar with Customs’ legal requirements. Remember, a freight forwarder is a transporter of consignment freight and they are responsible for arranging the delivery of imports to the business’s premises as well as the collection of products for export.
The export entry will require you to provide full details of the consignment to be exported. This includes the classification of the goods under the New Zealand tariff system. The exporter is responsible for ensuring that clearance is granted and the information provided to Customs is accurate. These export entries are necessary in supporting your zero-rating of export sales for GST purposes. This means that 0% GST is applied to the sales instead of the standard rate of 15%. Note that some types of export may be completely prohibited.
Transport
When it comes to transporting your products to the overseas market, there are a variety of options. If you are exporting on a small scale via website sales, you may simply post or courier items from your local Post Shop as you would if you were sending a personal item overseas. However, for larger scale operations, you need to consider other freight options so you can get your goods to the market in the most cost-effective manner.
This is where the services of a freight-forwarder are extremely useful. Whilst it is reasonably common for Customs brokers to provide freight forwarding services as part of their package, it is important to confirm this with them as not all do.
Getting Paid
How your business will be paid for its export consignments will largely depend on the market, the relationship you have with your customer, and the product that you are exporting. It will also depend on the approach you are using to export. For instance, if you are selling via your own website, you can simply require customers to pay using the checkout facilities on your site.
When exporting in large quantities to a business customer, it may be unrealistic to expect customers to prepay (pay in advance) for your goods. This is especially true if they are a new customer and a level of trust has not yet been developed. Instead, they will expect to pay once they have received confirmation that the goods have been shipped. It is recommended that you require your customer to arrange a letter of credit from their financial institution. This will act as a guarantee that you will be paid for the goods you send.
The fluctuations in currency exchange rates can have a significant impact on your export sales. When the New Zealand dollar increases against other currencies, it becomes more expensive for overseas customers to purchase products from your business. An alternative is for you to sell the products in the currency of the customer. However, this means that you are taking on significant risk – if the value of the New Zealand dollar increases, your foreign currency will buy fewer New Zealand dollars (and you will therefore make less money). It is also common to buy and sell products in US dollars, even when the country you are trading with is not the United States. In this case, both parties face risk.
One way to reduce the risk is to hold money received in a foreign currency account and only convert it back to New Zealand dollars when the exchange rate is favourable. Another option is to use financial tools such as ‘futures’ to lock in the value of the exchange rate.
DEFINITION:
Currency Futures: A futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date. Typically, one of the currencies is the US dollar.
Wikipedia. (n.d.).
It is recommended that you seek advice from the international business section of your financial institution or the expertise of an export consultant around foreign exchange transactions. This is especially important if you are pricing your goods and services in a foreign currency. In areas requiring specialised knowledge, including forward cover to protect against currency fluctuations, it is important to seek out professional advice.
Trade Clusters
Trade clusters are groups of businesses which work together to pursue exporting strategies. Globerman, S. and Storer, P. (2015) define a trade cluster as being: “a geographical concentration of traded commodities that are in the same industry or in closely related industries.”20 They form an important part of strategic management and are considered a competitive advantage (in terms of both domestic and international trade).
Porter (as cited in Irawati, 2013) states that, “A location’s best chance of attracting foreign investment and promoting exports, for example, is in existing or emerging clusters.”21 Porter argues that the most successful export businesses are those that belong to a cluster of businesses in the same industry that are geographically close to one another. He believes that, as a result of the globalisation of the economy, businesses have a better chance of penetrating export markets when they form successful clusters with other businesses.
The following are three case studies of New Zealand organisations which have used trade clustering to assist New Zealand businesses to export their product to international markets. For each of these case studies, think about how trade clustering could help you to export your products or services.
Case Study: Poutama
Poutama is a Māori small business development agency which works with Māori businesses to help them grow their businesses and to set them on a path of self-reliance sustainability. Exporting is a key focus of Poutama and it does this through the establishment of food clusters. Poutama has established clusters in cuisine, honey, dairy, red meat, beverages, and seafood through the Poutama Cuisine Cluster (PCC) project.
Case Study: Natural Health Products New Zealand
Natural Health Products New Zealand is a national organisation which represents natural products, nutritional foods, complementary medicines, medicinal cosmetics, and nutritional supplement industries. At the time of writing, 80% of businesses within the natural health industry in New Zealand are represented by Natural Products New Zealand.22 The organisation was established in 2002 with support from New Zealand Trade and Enterprise.
Natural Products New Zealand uses clustering to improve the marketing and exporting opportunities for their members through combining resources. Some of the products members export to foreign countries include extract powders, plant and marine oils, fruit powders and concentrates, natural honey products, deer velvet, skin care, herbs, and dairy products.
20 Globerman and Storer. (2015).
21 Irawati. (2013).
22 Natural Products New Zealand (NPNZ). (2021).
Case Study: The FoodBowl
The New Zealand Food Innovation Network (NZFIN) is another good example of clustering. NZFIN supports the growth of the New Zealand food and beverage sector by promoting innovative food science.23 One of the ways it achieves this is by encouraging entrepreneurship in New Zealand through the FoodBowl, an “an open-access, semi-commercial food facility designed to help food and beverage entrepreneurs develop, test, scale and sell their ideas.”24 It is an opportunity for small businesses to conduct research and development on their products in a shared facility before promoting the product to the local and international market. Export is a key focus of the FoodBowl. Whilst there are no specific rules around the length of time a business can use the FoodBowl, businesses are encouraged to look towards a long-term goal of exporting their products and moving on to their own facility. The idea is that businesses which do not have the capital behind them can turn food ideas into export-certified products with a very low level of risk to their business if things do not go to plan. The FoodBowl provides the technology and expertise that most small businesses would otherwise not be able to access. It also provides an opportunity for small businesses to collaborate and exchange ideas.
USEFUL WEBSITES:
Visit the Poutama, Natural Products New Zealand, and The FoodBowl websites to find out more about how each organisation uses trade clustering. You can also email the organisations with any questions.
• Poutama – http://www.poutama.co.nz
• Natural Products New Zealand – http://www.naturalproducts.nz.
• FoodBowl – http://www.foodinnovationnetwork.co.nz/locations/foodbowl
Discussion Questions:
• What information should a small business owner assemble before deciding to export products?
• What assistance is available to New Zealand businesses who wish to export?
• What are your thoughts regarding using a portal such as Amazon.com to export?
• Are there any trade clusters in your industry?
• How can being part of a trade cluster help your business?
NGOHE:
Imagine you are creating a promotional video to promote and market a product you would like to export overseas. You will need to identify the country and people within the country who will buy your product. You will need to consider:
• Social, cultural, or religious issues that your product might encounter.
• Economic issues regarding your product. How much will it cost? Can the target market afford it?
• Your customers. Are they male or female? Are they young or old? Why will they buy your product?
Be prepared to discuss and share your research with your classmates and kaiako. You will need to explain how your research influenced your decisions regarding the content or marketing of your promotional video.
23 Scoop Media – Business (2017).
24 Stuff New Zealand – Cuisine (2016).
References
Academy N.Z. (n.d.). Breaking Boarders. http://www.magazinestoday.co.nz/breaking-boarders
Accredited Language Services. (2016). The 10 Most Common Languages. https://www.accreditedlanguage. com/2016/09/09/the-10-most-common-languages
Aotahi Ltd. (2014). Taking Care of Business: A Guide to Entrepreneurship in Aotearoa (4th ed.). Te Kuiti, New Zealand: Aotahi.
Baker, G. (2017, May). Tapping the Minds of Offshore Consumers. NZBusiness Magazine, 32-33.
Google. (2018). Managing Multilingual and Multi-Regional Sites. https://support.google.com/webmasters/ answer/182192?hl=en
Irawati, D. (2013). Knowledge Transfer in the Automobile Industry: Global-Local Production Networks. London, United Kingdom: Routledge.
Ministry of Business, Innovation and Employment. (2017). Why Export? https://www.business.govt.nz/how-togrow/importing-and-exporting/questions-to-ask-yourself-before-exporting
Ministry of Business, Innovation and Employment. (2018). Tariff Changes http://www.mbie.govt.nz/info-services/ business/trade-tariffs/tariffs-in-new-zealand/tariff-changes.
Ministry of Foreign Affairs and Trade. (2021). New Zealand Trady Policy https://www.mfat.govt.nz/en/trade/nztrade-policy.
Natural Products New Zealand (NPNZ). (2021). Join NPNZ – Become a Member. https://www. naturalhealthproducts.nz/join-us/.
New Zealand Customs. (2010). Fact Sheet 23 – Pre-Importations Ruling Service for Tariff Classification and Concession Applicability https://www.customs.govt.nz/globalassets/documents/fact-sheets/fact-sheet23-pre-importation-rulings-service-for-tariff-classification-and-concession-applicability.pdf
New Zealand Customs. (2017a). Customs import value. https://www.customs.govt.nz/business/import/lodge-yourimport-entry/customs-import-value/
New Zealand Customs. (2017b). Duty and Allowances. https://www.customs.govt.nz/personal/duty-and-gst/dutyand-allowances/.
Poutama Trust. (2017). Māori SME Exports. http://www.poutama.co.nz/maori-sme-exports
Salzano, L. (2004). 4 Key Differences Between Trade Agents and Distributors. http://therightsocialmedia.novertur. com/international-trade-2/4-key-differences-trade-agents-and-distributors
Scoop Media – Business. (2017). The FoodBowl Making a Difference for NZ http://www.scoop.co.nz/stories/ BU1707/S00436/the-foodbowl-making-a-difference-for-nz.htm
Sivers, D. (2014). Same Word. Different Places? Different Meanings. https://sivers.org/quality
Stuff New Zealand – Cuisine (2016). Food Science: Brave New World. http://www.stuff.co.nz/life-style/food-wine/ cuisine/80195495/food-science-brave-new-world
U.S. Department of Commerce - International Trade Administration. (2017). Business Culture. https://www.export. gov/article?id=Business-Culture
Wikipedia. (n.d.). Currency Future. https://en.wikipedia.org/wiki/Currency_future
Disclaimer
The information in this publication is not intended as a substitute for professional advice. Te Wānanga o Aotearoa expressly disclaims all liability to any person / organisation arising directly or indirectly from the use of or reliance on, or for any errors or omissions in, the information in this publication, including any references to third parties. Whilst efforts have been made by Te Wānanga o Aotearoa to ensure the accuracy of the information provided, the adoption and application of this information is at the reader’s discretion and is his or her sole responsibility.
Copyright © Te Wānanga o Aotearoa, 2018. All rights reserved. No part of this material may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying, recording, taping or information retrieval systems) without the prior permission of Te Wānanga o Aotearoa. For further information and contact details refer to www.twoa.ac.nz.
This publication was revised in October 2021.
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