3 Export Secrets the Fortune 500 Doesn't Want You To Know

A special report on successful international product sales

by Nate Gilmore

Vice President Shipwire, Inc.

1-888-SHIPWIRE

www.shipwire.com

Three Export Secrets the Fortune 500 Doesn’t Want You to Know

1-888-SHIPWIRE 2185 Park Blvd. | Palo Alto, CA 94306

Table of Contents

State of the Union

A Goal Without a Path

The Fortune 500 Advantage

Selling Into Overseas Markets

Overseas E-commerce Markets are Growing Quickly

International Shipping

3 Export Secrets You Can’t Do Without

Export Secret No. 1

Export Secret No. 2

Export Secret No. 3

The Road Map

Global is the New Local

Best Practices for Entering the Export Market

Shipwire to the Rescue

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1-888-SHIPWIRE 2185 Park Blvd. | Palo Alto, CA 94306 Page 3

State of the Union 2010A Goal Without a Path

In his 2010 State of the Union address, President Barack Obama identified U.S. exports as a major catalyst to help reignite America’s sagging economy. “We will double our exports over the next five years,” said President Obama, “an increase that will support 2 million jobs in America.” A lofty goal, to be sure. President Obama went on to say this goal would require much more effort than the government alone could muster. Rather, he called on a ground-swelling of small business growth to get the economy headed in the right direction. The question now posed to the market and various export government agencies is, “How do we double exports in five years?” The Obama export vision is a call to action – in need of a roadmap. Shipwire contends, and will address in this white paper, that the same advantages that benefit the globalization of the Fortune 500 are now available to small and medium sized businesses. By employing the same export strategies as the Fortune 500, small and medium sized merchants can open international markets, compete globally and break down the barriers to overseas product sales.

The Fortune 500 AdvantageOver the past 15 years, an array of e-commerce tools and marketplaces have emerged to make it possible to source products globally and sell them locally. For-tune 500 businesses have discovered that to compete in an overseas marketplace and subsequently grow exports, inventory must be stored in those local markets. By keeping their inventory in the local marketplace, it can be shipped to individual and corporate buyers with local shipping rates, enable incountry “drop shipping”, and al-low small retail shops to get resupplied quickly when inventories run low.

Additionally, due in part to post-911 security concerns, local customs agencies around the world often hold packages that are shipped into their country for weeks on end. Consequent-ly, American businesses that sell products into a foreign country – even into a market as close as Canada – have traditionally been unable to guarantee their prod-ucts would arrive in a timely fash-ion. Moreover, as Ameri-

2 mil. jobs in America will increase and double exports over the next five years. A lofty goal, to be sure

3 Export Secrets You Can’t Do Without

Export Secret No. 1 Globalize Your Supply Chain

Export Secret No. 2 Try Before You Buy

Export Secret No. 3 Flex the Power of Local Connections

Applying these three export secrets to your business can jump start your entry into the international marketplace with less risk and more success.


Selling Into Overseas MarketsOverseas E-commerce Markets are Growing Quickly

The reality is that overseas retail markets are growing, and opportunity is ripe for business leaders that want to make exporting – and President Obama’s call to action -- successful. Forrester Research recently posted some incredible numbers in its “U.S. Online Retail Forecast, 2009 To 2014” that suggest e-commerce will continue to grow at a 10 percent compound annual growth rate (CAGR) in the United States through 2014, and will hit $250 billion in 2014 (up from $155 billion in 2009). Forrester further estimates that online retail sales in the United States were up 11 percent, compared with 2.5 percent for all retail sales. In Forrester’s “Western European Online

can exporters have learned, a surprisingly high number of packages seem to “disap-pear” after crossing the border, never to reach their destination. Fortune 500 compa-nies have learned the hard way that storing merchandise in a foreign market is the missing link that eliminates the significant hassles, cost and time constraints associated with international product sales.

In lieu of storing merchandise abroad, product manufacturers and exporters have tra-ditionally worked through distributors that were willing to buy containers of product at wholesale prices and, in turn, resell them to end users, drop shippers or directly to over-seas retailers. This proverbial “middle man” introduces additional complexities, oppor-tunities for error and costs that further reduce the profits of selling to the global econ-omy. Adding to the challenge, finding good distributors is difficult and keeping, as well as managing those that perform, is increasingly difficult in today’s fast paced market-place. As a result, Fortune 500 companies have established trusted networks of distribu-tion partners that help them route, transfer and ship their products through the individ-ual nuances of each country.

Even so, only the largest product suppliers and retailers have been able to master the fi-nal challenge of shipping optimization. With a dizzying array of options and rate charg-es, international and local carriers have traditionally been unwilling to partner with American exporters without significant volume commitments. As a result, the necessary technology to optimize multiple carriers for a single exporter has only been economical-ly available to a chosen few.

If this were the end of the story then President Obama’s vision of doubling US exports would be dead on arrival. But recent changes in technology and global fulfillment net-works are now bringing the purchasing power of the Fortune 500 to merchants both do-mestically and abroad. For merchants that take advantage of the globalization of these supply chain efficiencies, the world market is not only reachable but also an immediate source of revenue and profits.

$250 bln. in e-commerce sales by 2014


International ShippingA Siren’s Song

Buyers want products fast and free, and any items that don’t meet that criteria are more often abandoned in the shopping cart. For example, in a survey conducted by PayPal and comScore , 43 percent of shoppers said they abandon their shopping carts because of unexpectedly high shipping charges.

Online retailers selling internationally are taking note of this alarming data, and are realizing that international parcel or express shipping is not the right option to reach overseas sellers for five reasons:

While international shipping options may be easy for one or two shipments, it breaks down as an option with any real sales volume. It is not a real long-term solution for the entrepreneur who wants to build a competitive overseas sales channel. “Consolidated” international shipping options break down for the same reasons – slow, expensive, error prone and not scalable. Today’s buyer wants his online sale to arrive fast and hopefully with free shipping. It is a market reality -- one that international shipping options will never competently address.

International shipping is too slow for today’s e-commerce sales. Even express international shipping must go through customs, and most shipments must pass through two to three carriers’ networks before reaching the buyer.

International shipping is too expensive. Ex-press international is even more expensive.

International shipping is too risky. Each shipment must go through customs, where even the best shipper has a loss rate.

International shipping is too confusing for everybody. Duties, tariffs, customs, carrier brokerage charges and various local and national taxes must be navigated, adding to increased time, cost and risk. International shipping is not a good cus-tomer experience. International shipping does not allow for a simple returns process, resulting in a major headache if the cus-tomer no longer wants the product.

43% of shoppers said they abandon their shopping carts because of unexpectedly high shipping charges

Retail Forecast, 2009 To 2014,” it is estimated that e-commerce in Western Europe will grow a bit faster at 11 percent CAGR, and increase from $93 billion in 2009 to $156 billion in 2014.

Canada is another high-growth market. In an April 2009 ComScore a report entitled “Canada Opportunities” stated there is an increase in the number of people going on-line to buy goods. In fact, Canada boasts a 72 percent online reach, with the United States and the United Kingdom close behind at 62 percent and 60 percent, respectively.


3 Export Secrets You Can’t Do WithoutAs sellers look overseas, a large market of willing buyers greets them. Familiar ecom-merce tools (e.g. PayPal and Google Adwords) and marketplaces (e.g. eBay, Amazon) put sales within reach but, delivering the goods encounters roadblocks of cost, customs and time that can quickly turn a good sale into a customer support nightmare. How can today’s retailer, all too often struggling with time and capital constraints, hope to deliver on the demand for their products? Take a page out of the Fortune 500 playbook and follow a proven road to overseas growth.

Export Secret #1

Globalize Your Supply Chain by Shipping Locally

Today’s large global suppliers, online retailers and manufacturers have all “mastered” shipping and globalized their supply chain. Take consumer electronics behemoth Logi-techi, for example.

If a buyer in the United Kingdom purchases a WebCam online, Logitech doesn’t ship it from its manufacturing plant. The company ships it from the local inventory sitting in a warehouse closest to the United Kingdom. Ultimately, this provides a better experience for the buyer, as the WebCam is delivered faster. Furthermore, Logitech can leverage shipping promotions to spur conversion online. And, if the device must be returned, it can be sent back to the local warehouse for restocking.

By having inventory in the local market, Logitech is able to overcome the challenges of international shipping and take advantage of local market sales promotions and customer satisfying returns processes. Inventory is imported into the United Kingdom when it clears customs, and Logitech pays the appropriate tax and duties on the bulk shipment, shedding light on its “landed cost” for each product. Now, Logitech has many options by which it can sell into the UK marketplace:

Online at its own local Web store, leveraging local shipping promotions

Listed in marketplaces like Amazon.com or eBay.com, where buyers would get the product in a timely manner to ensure positive feedback

Marketed by affiliates or resellers, which Logitech can drop ship to buyers

Sold at a local authorized distributor, who can be quickly resupplied with small wholesale shipments

The Logitech example illustrates the salient point the Fortune 500 has long known: Where international shipping is a barrier to sales, having products in the local market allows the seller to sell globally while acting locally.

11% annual growth rate for e-commerce in the U.S.


Export Secret #2:

Try Before You Buy

In the Timothy Ferris best selling business book The 4-Hour Workweek, readers are en-couraged to micro-test advertisements to gauge consumer response prior to manu-facturing a product. Ferris advises entrepreneurs to drive potential customers to an e-commerce website to take orders for products that have yet to be manufactured. In turn, the theory goes, one can abandon the products that didn’t sell well and focus exclusively on the home run products.

Fortune 500 Companies follow this same methodology but employ much more so-phisticated and scientific methods. Under the guise of “market research,” large man-ufacturers and retailers not only test market the viability of products but they also break into new international markets through partnerships prior to committing to specific in-country channels and the markets.

Business schools around the world are rich with case studies that describe the failed efforts of multinational corporations that didn’t follow this approach. Brazen with confidence and devoid of local wisdom, these companies pushed their products into international markets with disastrous results. However, beyond selling products that were offensive or not desired by local communities, many of the worst business case studies center around business decisions that were made prior to having any tangi-ble experience in specific overseas marketplaces. In short, investing capital and infra-structure too early can be wasteful and, in some cases, irreversible.

Fortune 500 companies tip the scales to their advantage by entering new markets via partnerships that have an existing presence in the marketplace. Despite being able to order products from a single website, behind the scenes some of the largest online merchants leverage local services that are embedded in-country. The result is a flex-ible and cost effective means of test marketing a country without investing heavily in the capital and labor infrastructure required to set up shop locally.

In today’s instant-on, geo-targeted marketing reach made possible through advertising services such as Google AdWords and Facebook, the world’s most effective merchants are leveraging the power of localized social media in combination with the synergies of local fulfillment and distribution. Whereas one cannot be everything to everyone, smart marketers are targeting local prospects with advertisements that specifically drive products that can be delivered incountry or in-union (e.g. European Union). As a result, Fortune 500 companies have merged the know-how of marketing and operations for a highly-profitable and efficient entry into international test markets.

Fortune 500s tip the scales by entering markets via strategic partnerships with local firms


Export Secret #3:

Flex the Power of Local Connections

Fortune 500 companies have learned through experience that there are both advan-tages and disadvantages of using their existing vendors when entering new markets. Whereas one partner may be strong in one country (or even internationally) they may not have the same presence and strength as a local partner. Moreover, local partners possess the in-country knowledge that often international corporate partners lack. By leveraging the efficiencies of both, the most successful exporters leverage local and in-ternational partnerships. And the reason they’ve gone down this hybrid path is that they’ve learned their lessons the hard way.

For example, when Apple Computer entered Eastern Europe in the 1990s they lacked an awareness of local shipping carriers and the then current state of copyright laws in Po-land. By not understanding the copyright laws, Apple’s line of computers were deemed too expensive in comparison to Windows based computers. On paper, the Apple Com-puter products appeared to be similarly priced to comparative offerings from brand name computers running the Microsoft Windows operating system. However, what Ap-ple Computer failed to realize is that it was perfectly legal to copy and install software according to local copyright statutes in Poland at the time (Polish copyright laws have since been brought up to international standards). What Apple didn’t understand is that the total cost of ownership for a computer was heavily stacked against them when one could simply install a colleague’s Windows software library for free.

So too, Apple’s lack of connections with local shipping carriers brought with it unpre-dictable financial risks. Despite a regular flow of products into the country through known international carriers, many shipments would simply disappear after entering Poland. What Apple didn’t realize is that that the local shipping carriers had relation-ships throughout the country that ensured safe travel. As a result, once Apple switched to using local shipping carriers the loss of products in transit disappeared.

In today’s global marketplace, the Wild West days of disappearing inventory is less of a problem with some of the large established markets like the U.S., Canada and Europe; but, local carrier knowledge remains a prized commodity. Fortune 500 exporters have learned to evaluate every order against the efficiencies and costs of both international and local carriers. By choosing the best provider of service unique to the individual ship-ment, Fortune 500 companies have automated the process of choosing the best meth-od to get their products to customers in the least amount of time and for lowest cost. As a result, every order is optimized for both efficiency and profits.

In a world where insatiable demand for one’s products can be hampered by delayed ship-ping times and costly fees, smart merchants evaluate both international carriers and local providers for a best of breed solution that is appreciated by their new customers.

Fortune 500 exporters have learned to evaluate every order against the efficiencies and costs of both international and local carriers


The RoadMapGlobal is the New Local

President Obama clearly understood in his 2010 State of the Union speech that the end goal is a huge increase in U.S. exports and that the major drivers of this export surge starts with thousands of small businesses increasing exports – niche suppliers and manufactures setting their sights on overseas sales.

To gain traction and “move the needle,” this export growth needs to be diverse and huge in numbers. Tens -- if not hundreds -- of thousands of entrepreneurs and managers of growing businesses must start and grow exports. For that to happen, the process must be understandable, the startup cost must be low and the business model must have inherent economies of scale that increase profits with less hassle as traction is gained. In short, these processes must be simple, flexible, automated and scalable.

In the mid- to late 1990s, the Internet and online marketplaces finally began to meet these criteria and offered a jumping-off point for online sellers to reach into global markets. Sites like Yahoo Stores, Amazon.com, eBay.com, Google Adwords, PayPal and Alibaba offered new web-based services with low to no start-up costs and success-based pay-as-you-use pricing. Thanks to these ecommerce pioneers, merchants were able to quickly setup new online businesses and start selling:

1. Services like Yahoo Stores, Google Adwords, Amazon.com and eBay.com enabled retailers to reach a global audience interested in buying their wares;

2. PayPal provided secure payment processing for online vendors; and

3. Alibaba offered a platform to connect overseas manufactures and suppliers with SMB buyers.

4. Communicating with and getting money from overseas buyers is now as easy as it had been with domestic buyers.


Best Practices for Entering the Export Market1. Research and Marketing

Start by investigating the markets you’re going into and how you’ll get your products in front of buyers. With today’s online marketing tools, this process is much more acces-sible than ever before. Rather than conducting extensive market research, ask yourself these fundamental questions:

Take the time to write down a marketing plan (or just an outline). Understand your short and long-term product distribution goals, and visualize what marketplaces you want to use to distribute products.

2. Getting the Product into the Warehouse

At Shipwire, we break up the entire fulfillment process into a step-by-step process:

Sound scary? It’s really not.

To receive orders, your existing website can be quickly changed to focus internation-al Web site visitor into a special Web store category - maybe a shopping cart category called “Canada Customers” or “U.K. and European Customers”. Then just swap out your PayPal buy-now buttons or confirm your merchant account can take foreign currency.

For getting the goods out of the warehouse, shipping is easy once you have product in the warehouse. It can be as simple as swapping out Canada Post or Royal Mail for U.S. Postal Service.

1. What online marketplaces will drive buyers to your website?

2. What keywords and local phrases describe your product?

3. What are the pay-per-click and CPM prices for regional keyword buys?

4. What directories can you use to seed your catalog?

1. Getting goods into the country/warehouse (“Inbound receiving”);

2. Getting the order (“Automating Order notification and processing”);

3. Getting the goods out of the warehouse (“Outbound Shipping” either B2C or B2B).


That leaves getting product into the country as the hassle. Let’s focus in on this. You will likely be making an LTL freight shipment (less-than-truckload) from your existing ware-house via a freight forwarder and customs broker. Ask around (or ask Shipwire) for a couple freight and broker names that specialize in international freight, and have expe-rience with the country you are targeting. Always get multiple quotes.

Importing in bulk looks different to a customs agent than an individual parcel ship-ment. Customs will scrutinize your inventory documentation and tax paperwork. One option to successfully import in volume is to register your company with the local tax authority. This option will provide you a local tax ID for the importer of record. It is typi-cally not difficult to get a tax ID, a couple forms sent to the right place.

There are benefits from registering and dealing with taxes in country, here are a couple:

If you are familiar selling in the U.S., you may struggle to understand how taxes are handled abroad. Basically, the rest of the world is on a system called “Value Added Tax” (VAT). The Canadians call it “Goods & Service Tax” (GST); but, it is basically VAT. It is different than the sales tax system we have in the U.S.

Governments love the VAT system because the participants in the supply/sales chain audit one another, and only pay tax on the incremental “Value Add” that each participant adds to the product. Each participant needs to know what the value of the product is at the point where they receive it. Check out Wikipedia on VAT if you really want to learn the history or the lingo.

You want a local tax ID and you want to file taxes locally because if you don’t you will likely overpay VAT taxes. When you import you will need to pay VAT on the value of the imported product (Basically “Supplier Cost”). When you sell to a local buyer you will charge them a VAT tax. You will have to pay the government the full retail VAT tax amount unless you can prove you already payed a portion of tax (aka, your import tax payment) - in which case you only have to pay the difference between Import Value and Retail Value tax amounts.

To be blunt, taxes are complicated, and doing them wrong can get expensive. Do yourself a favor, talk to a local tax advisor BEFORE you ship a large amount of inventory. Shipwire has a list of tax advisors.

When you send inventory to yourself at your overseas warehouse, you are changing from one tax jurisdiction to another. It is a “transaction” and customs will expect a tax check in addition to customs fees and duties. The three are known as “CDT”.

If you currently operate in the U.S., you need to get the equivalent of a Federal Tax ID. In Canada its called a “Business Number”. In the U.K. its a “Business Registration”.

Governments love the VAT system because the participants in the supply/sales chain audit one another, and only pay tax on the incremental “Value Add” that each participant adds to the product


In the U.K. there is an alternative to a full business registration that involves registering your business as an importer with the U.K. government and getting electronic Binding Tariff Information and a TURN number. See the Shipwire UK Warehouse Guide for links and more information on this.

3. Partners provide leverage

Don’t let the use of the word leverage here give you sub-prime mortgage nightmares. Leverage is a core law of physics. Use a pulley and you know that you can lift a heavy burden with a small amount of force. Partners are critical to your success; but you have to use them correctly. An ‘in country’ order fulfillment partner will offer local warehouse expertise at a reasonable price...and give you room to scale:

Your order fulfillment provider should allow you to start with a very small amount of inventory, and charge you on a usage basis as you increase volume. This is especially important when you are just starting out.

Make sure that your warehouse doesn’t charge you account set-up fees, request minimum shipping amounts, or have hidden receiving costs.

Your order fulfillment provider should easily connect into your shopping cart, and marketplaces such as eBay, Amazon and PayPal. This will help you move fast.

You should be able to transparently see an order from Web store to doorstep.

They should counsel you on best practices and help you cost-effectively scale.


Shipwire to the RescueEnter Shipwire, and its “Store-Sell-Ship™ Platform for Global Growth™.” We’ve taken the efficiencies of enterprise supply chain management and created an offering that delivers three key types of services:

1. International Growth Support – we help established merchants export into overseas marketplaces by extending their existing infrastructure through our global fulfillment network.

2. Outsourced Fulfillment – for many companies, we are their fulfillment and distribution arm for their business-to-business and business-toconsumer operations.

3. Entrepreneur Order Management – for the emerging business, we provide free Order Management Software and a scalable path to creating the American Dream through access to 3PL Warehouse services that are normally out of reach for startups.


About Shipwire, Inc.Shipwire provides cloud-based logistics, shipping software and ecommerce order fulfillment services from warehouses around the world for companies of all sizes. Shipwire’s industry-leading logistics platform helps you grow sales, expand into new markets, and delight customers by eliminating the hassles of shipping and storage. Instantly connect your online store or marketplace with our warehouses in U.S., Canada, UK, or Asia, and let Shipwire optimally pick, pack and ship orders to your customers faster, and for less.

Visit www.shipwire.com/why-shipwire to learn more about order fulfillment.

Please contact us for more information

Contact sales through [email protected] or 1-888-SHIPWIRE

Connect with us on Twitter: @shipwire

i Logitech is not a Shipwire customer and all statements here are assumptions made for illustrative purposes.

About the AuthorNate Gilmore, Vice President, Marketing & Business Development Nate oversees Shipwire’s channel development and developer network, as well as our marketing and public relations. He built and manages Shipwire partnerships with over 50 ecommerce providers. Previously, Nate was at Concentric, acquired by XO Communications, where he ran product management, sales and marketing. Over his six year career with Concentric, he developed dozens of new business channels, by initiating new products for small- and mid- size businesses, developing partner programs for those products, and working with web developers and systems integrators to provide ongoing support of those products. Previously, Nate held various legal positions in intellectual property and business law. He holds a B.A. in History, and a J.D., from Santa Clara University. Follow Nate at the Shipwire Blog http://www.shipwire.com/blog

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3 Export Secrets the Fortune 500 Doesn't Want You To Know