On U.S. Tax Day, we devote this post to discussing the true costs of doing business internationally. Particularly for traders in goods, these costs must be factored into business operations to protect the bottom line.
Tariffs: Just about every government collects import duties or tariffs on goods entering their country. Tariffs are collected at the country’s border, making them difficult to avoid. They are typically calculated as a percentage of the value of the good(s) being entered. For example, a duty of 5% ad valorem may be assessed on bicycles entering the country. Alternatively, the duty may be imposed as a specific amount per unit of good being entered. For example, a duty of one cent may be imposed on every litre of alcohol that enters the country. The cost of the tariffs paid on the goods should be incorporated into the sale price to reflect the true costs of doing business internationally.
Non-Tariff Barriers (NTBs): Goods exported to another market may face different standards and requirements than in the domestic market. The cost of preparing your goods to meet these new standards is an essential investment and must also be factored into the cost of doing business internationally. In addition, some countries will require that certain products obtain a license or permit to enter, another potential cost to be considered.
Trade Agreements signed among trade partners focus on reducing or eliminating tariffs. They may also negotiate streamlined standards so that a good that conforms to domestic requirements will also be accepted into the trade partner’s market. Doing business in the “right country” can significantly reduce the cost of doing business internationally.
Time Delays: Each day that the product is in transit or sits in a port keeps it away from the customer, adding to the cost of doing business. Unlike tariffs or NTBs, however, it is not always possible to anticipate or to prepare for these costs. Yet, the costs associated with delays from extended customs inspections or inadequate number of unloading facilities or port personnel can significantly detract from your bottom line. Increasingly, governments have become more aware of these challenges and are moving to address them through trade facilitation measures. Meanwhile, companies can rely on experienced and efficient trade professionals – customs brokers, trade forwarders, customs attorneys to minimize these delays and associated costs.
Transaction Costs: It pays to stay on top of the exchange rates for the currencies in which your goods are traded. What is the true cost of your product in Country X, in that currency and after taking into account the rate of exchange? Another essential transaction cost is the price of having your bank issue letters of credit to manage the exchange of goods and money. Whatever the cost, it is cheaper than not getting paid at all.
Contact us – we can assist you with managing and minimizing the costs of doing business internationally.