5 KEYS TO SUCCESSFUL EXPORT BUSINESS IN NIGERIA

5 KEYS TO SUCCESSFUL EXPORT BUSINESS IN NIGERIA

1.      EXPORT REGISTRATIONS

Register A Limited Liability Company

One of the first steps you must take when starting out as an exporter in Nigeria is to register a limited Liability company with the Corporate Affairs Commissions. This makes your company become a legal entity in itself. As with other businesses, every export business in Nigeria must have a registered office and a list of directors that has consented into you the managing Director starting an export trade. Successful

Registration with the Nigeria Export Promotion Council
The Nigerian Customs Service rules that anyone willing to engage in export business must register with the Nigerian Export Promotion Council. This Council was created to enhance and encourage exportation of commodities other than oil with the ultimate aim of generating national revenue through alternative means. Registering with the Nigerian Export Promotion Council is now easier than ever just visit the Council’s zonal office in your area and obtain a form or website (www.nepc.gov.ng) and click the ‘Register here’ link on the right sidebar. You will be shown the full details of the procedure and requirements.

2.      EXPORT PAYMENT OPTIONS

There are four general terms of payment extended to a company selling goods overseas. Ranked by preference of the exporter from the least to the most risk, Cash in Advance, Letters of Credit, Documentary Collections or bills for Collection and Open Account.

Cash in Advance

Cash in advance terms represent the least risk to the exporter, and are typically used in new relationships where transactions are small and the buyer has little flexibility but to prepay. Since there is no guarantee that the goods will be shipped, the buyer needs to feel comfortable in the seller's ability and willingness to ship after payment has already been effected.

Advantages to Exporter

• No risk
• Immediate use of funds

Disadvantages to Exporter

• May require issuance of down payment guarantee or standby letter of credit
• Buyer may expect price discount

Documentary Letters of Credit

Letters of credit are the legal financial instruments most frequently used to guarantee payment for goods and services imported and exported. Because they mitigate the financial risks of doing business in unfamiliar economies, letters of credit also facilitate international sales.

A letter of credit is issued by the buyer's bank, advised through a bank in the sellers' country (in most cases, the seller's bank), then forwarded to the seller by the advising bank. The letter specifies the terms and conditions that must be met before payment is rendered. The letter of credit process has been standardized by a set of rules published by the International Chamber of Commerce. These rules are referred to as the Uniform Customs and Practice for Documentary Credit (UCP) and are currently listed in ICC Publication No. 500. For example it could be tagged revocable or irrevocable letter of credit.

Advantages to Exporter

• Reasonable assurance of payment
• Prompt payment
• Possible financing availability

Disadvantages to Exporter

• Strict compliance is required
• More cumbersome
• More expensive than other methods of payment

Documentary Collections or bills for collection

Documentary collection terms are widely used in the purchase and sale of goods and services in international markets. The transaction flow for a documentary collection requires the seller to forward collection instructions, appropriate documents and the seller's draft through the banking system to the buyer's bank. Banks act as intermediaries, protecting the interest of both parties. Both the buyer and seller assume risk in the transaction, since the buyer can refuse to pay for the documents, or the seller can ship unacceptable merchandise.

Advantages to Exporter

• Seller/banks control shipping documents
• In most cases, payment is more prompt than open account
• In most cases, collections are less expensive than letters of credit
• Usually, there are reduced processing requirements compared to letters of credit

Disadvantages to Exporter

• Payment is not guaranteed
• Collection time is longer than letters of credit and cash-in-advance
• There is less document control with air shipments
• Release of documents occurs prior to payment under 'time' draft collections

Open Account

Advantages to Exporter

• May encourage repeat business

Disadvantages to Exporter

• No assurance of payment

Seller's capital is tied up until payment is made

3.      EXPORT PROCEDURE AND DOCUMENTATION

When preparing to ship a product overseas, the exporter needs to be aware of packing, labeling, documentation, and insurance requirements. Because the goods are being shipped by unknown carriers to distant customers, the new exporter must be sure to follow all shipping requirements to help ensure that the merchandise is

• packed correctly so that it arrives in good condition;
• labeled correctly to ensure that the goods are handled properly and arrive on time and at the right place;
• documented correctly to meet local and foreign government requirements as well as proper collection standards; and
• insured against damage, loss, and pilferage and, in some cases, delay.

Because of the variety of considerations involved in the physical export process, most exporters, both new and experienced, rely on an international freight forwarder to perform these services.

Freight Forwarders

The international freight forwarder acts as an agent for the exporter in moving cargo to the overseas destination. These agents are familiar with the import rules and regulations of foreign countries, methods of shipping, government export regulations, and the documents connected with foreign trade.

Freight forwarders can assist with an order from the start by advising the exporter of the freight costs, port charges, consular fees, cost of special documentation, and insurance costs as well as their handling fees - all of which help in preparing price quotations. Freight forwarders may also recommend the type of packing for best protecting the merchandise in transit; they can arrange to have the merchandise packed at the port or containerized. The cost for their services is a legitimate export cost that should be figured into the price charged to the customer.

When the order is ready to ship, freight forwarders should be able to review the letter of credit, commercial invoices, packing list, and so on to ensure that everything is in order. They can also reserve the necessary space on board an ocean vessel, if the exporter desires.

If the cargo arrives at the port of export and the exporter has not already done so, freight forwarders may make the necessary arrangements with customs brokers to ensure that the goods comply with customs export documentation regulations. In addition, they may have the goods delivered to the carrier in time for loading. They may also prepare the bill of lading and any special required documentation. After shipment, they forward all documents directly to the customer or to the paying bank if desired.

Packaging

In packing an item for export, the shipper should be aware of the demands that exporting puts on a package. Four problems must be kept in mind when an export shipping crate is being designed: breakage, weight, moisture, and pilferage.

Most general cargo is carried in containers, but some is still shipped as breakbulk cargo. Besides the normal handling encountered in domestic transportation, a breakbulk shipment moving by ocean freight may be loaded aboard vessels in a net or by a sling, conveyor, chute, or other method, putting added strain on the package. In the ship's hold, goods may be stacked on top of one another or come into violent contact with other goods during the voyage. Overseas, handling facilities may be less sophisticated than in your country and the cargo may be dragged, pushed, rolled, or dropped during unloading, while moving through customs, or in transit to the final destination.

Moisture is a constant problem because cargo is subject to condensation even in the hold of a ship equipped with air conditioning and a dehumidifier. The cargo may also be unloaded in the rain, and some foreign ports do not have covered storage facilities. In addition, unless the cargo is adequately protected, theft and pilferage are constant threats.

Since proper packing is essential in exporting, often the buyer specifies packing requirements. If the buyer does not so specify, be sure the goods are prepared with the following considerations in mind:

• Pack in strong containers, adequately sealed and filled when possible.
• To provide proper bracing in the container, regardless of size, make sure the weight is evenly distributed.
• Goods should be packed in oceangoing containers, if possible, or on pallets to ensure greater ease in handling. Packages and packing filler should be made of moisture-resistant material.
• To avoid pilferage, avoid mentioning contents or brand names on packages. In addition, strapping, seals, and shrink wrapping are effective means of deterring theft.

One popular method of shipment is the use of containers obtained from carriers or private leasing concerns. These containers vary in size, material, and construction and can accommodate most cargo, but they are best suited for standard package sizes and shapes. Some containers are no more than semi-truck trailers lifted off their wheels and placed on a vessel at the port of export. They are then transferred to another set of wheels at the port of import for movement to an inland destination. Refrigerated and liquid bulk containers are readily available.

Normally, air shipments require less heavy packing than ocean shipments, but they must still be adequately protected, especially if highly pilferable items are packed in domestic containers. In many instances, standard domestic packing is acceptable, especially if the product is durable and there is no concern for display packaging. In other instances, high-test (at least 250 pounds per square inch) cardboard or tri-wall construction boxes are more than adequate.

For both ocean and air shipments, freight forwarders and carriers can advise on the best packaging. Marine insurance companies are also available for consultation. It is recommended that a professional firm be hired to package for export if the exporter is not equipped for the task. This service is usually provided at a moderate cost.

Finally, because transportation costs are determined by volume and weight, special reinforced and lightweight packing materials have been devised for exporting. Care in packing goods to minimize volume and weight while giving strength may well save money while ensuring that goods are properly packed.

Labelling

Specific marking and labelling is used on export shipping cartons and containers to

• meet shipping regulations,
• ensure proper handling,
• conceal the identity of the contents, and
• help receivers identify shipments.

The overseas buyer usually specifies export marks that should appear on the cargo for easy identification by receivers. Many markings may be needed for shipment. Exporters need to put the following markings on cartons to be shipped:

• Shipper's mark.
• Country of origin (exporters' country).
• Weight marking (in pounds and in kilograms).
• Number of packages and size of cases (in inches and centimetres).
• Handling marks (international pictorial symbols).
• Cautionary markings, such as "This Side Up" or "Use No Hooks" (in English and in the language of the country of destination).
• Port of entry.
• Labels for hazardous materials (universal symbols adapted by the International Maritime Organization).

Legibility is extremely important to prevent misunderstandings and delays in shipping. Letters are generally stencilled onto packages and containers in waterproof ink. Markings should appear on three faces of the container, preferably on the top and on the two ends or the two sides. Old markings must be completely removed.

In addition to port marks, customer identification code, and indication of origin, the marks should include the package number, gross and net weights, and dimensions. If more than one package is being shipped, the total number of packages in the shipment should be included in the markings. The exporter should also include any special handling instructions on the package. It is a good idea to repeat these instructions in the language of the country of destination. Standard international shipping and handling symbols should also be used.

Exporters may find that customs regulations regarding freight labelling are strictly enforced; for example, most countries require that the country of origin be clearly labelled on each imported package. Most freight forwarders and export packing specialists can supply necessary information regarding specific regulations.

Documentation

Registration of Form NXP

The Nigerian Customs Service also requires that Nigerian exporters complete and register Form NXP with authorized dealers (commercial or merchant banks) of their choice for transactions that is $10.000 or more. Your chosen authorized dealer will be in charge of handling your funds and transactions, as you will be required to set up and maintain a Domiciliary Account with them, to which your payments will be deposited. there are some mandatory  documents which are  required by the importing country and the forwarding departments before they can be allowed out of Nigeria and  into the importing  country They include certificate of origin, Pyhto-sanitary certificate. Pre-shipment inspection certificate, packing list to mention a few. Clearances are required at the port by agencies like NAFDAC, NDLEA, NPA, and NCS to mention a few. Virtually all countries require that businesses planning to sell their product or commodities to their citizens must obtain certain licenses and certifications. So, you will need to find out more about the requirements for any country you want to sell your products into.
However, you must bear in mind that obtaining some of these licenses require inspection of the products you intend to sell in the target foreign country. And you will be granted permission to sell them only if they meet certain standards as set by the government of that country. In some countries you might be required to send samples of your product for registration and testing before they are allowed into their country so this must be done at the export negotiating stage.
 Exporters should seriously consider having the freight forwarder handle the formidable amount of documentation that exporting requires; freight forwarders are specialists in this process. The following documents are commonly used in exporting; which of them are actually used in each case depends on the requirements of both our government and the government of the importing country.

* Commercial invoice. As in a domestic transaction, the commercial invoice is a bill for the goods from the buyer to the seller. A commercial invoice should include basic information about the transaction, including a description of the goods, the address of the shipper and seller, and the delivery and payment terms. The buyer needs the invoice to prove ownership and to arrange payment. Some governments use the commercial invoice to assess customs duties.

* Bill of lading. Bills of lading are contracts between the owner of the goods and the carrier (as with domestic shipments). There are two types. A straight bill of lading is nonnegotiable. A negotiable or shipper's order bill of lading can be bought, sold, or traded while goods are in transit and is used for letter-of-credit transactions. The customer usually needs the original or a copy as proof of ownership to take possession of the goods.

* Consular invoice. Certain nations require a consular invoice, which is used to control and identify goods. The invoice must be purchased from the consulate of the country to which the goods are being shipped and usually must be prepared in the language of that country.

* Certificate of origin. Certain nations require a signed statement as to the origin of the export item. Such certificates are usually obtained through a semi-official organization such as a local chamber of commerce. A certificate may be required even though the commercial invoice contains the information.

* Inspection certification. Some purchasers and countries may require a certificate of inspection attesting to the specifications of the goods shipped, usually performed by a third party. Inspection certificates are often obtained from independent testing organizations.

* Dock receipt and warehouse receipt. These receipts are used to transfer accountability when the export item is moved by the domestic carrier to the port of embarkation and left with the international carrier for export.

* Destination control statement. This statement appears on the commercial invoice, ocean or air waybill of lading, and SED to notify the carrier and all foreign parties that the item may be exported only to certain destinations.

* Insurance certificate. If the seller provides insurance, the insurance certificate states the type and amount of coverage. This instrument is negotiable.

* Export license. (when needed).

* Export packing list. Considerably more detailed and informative than a standard domestic packing list, an export packing list itemizes the material in each individual package and indicates the type of package: box, crate, drum, carton, and so on. It shows the individual net, legal, tare, and gross weights and measurements for each package . Package markings should be shown along with the shipper's and buyer's references. The packing list should be attached to the outside of a package in a waterproof envelope marked "packing list enclosed." The list is used by the shipper or forwarding agent to determine (1) the total shipment weight and volume and (2) whether the correct cargo is being shipped. In addition, customs officials (both local and foreign) may use the list to check the cargo.

Documentation must be precise. Slight discrepancies or omissions may prevent merchandise from being exported, result in exporting firms not getting paid, or even result in the seizure of the exporter's goods by local or foreign government customs. Collection documents are subject to precise time limits and may not be honoured by a bank if out of date. Much of the documentation is routine for freight forwarders or customs brokers acting on the firm's behalf, but the exporter is ultimately responsible for the accuracy of the documentation.

The number of documents the exporter must deal with varies depending on the destination of the shipment. Because each country has different import regulations, the exporter must be careful to provide proper documentation. If the exporter does not rely on the services of a freight forwarder, there are several methods of obtaining information on foreign import restrictions:

• Foreign government embassies and consulates can often provide information on import regulations.
• The Air Cargo Tariff Guidebook lists country-by-country regulations affecting air shipments. Other information includes tariff rules and rates, transportation charges, air waybill information, and special carrier regulations. Contact the Air Cargo Tariff, P.O. Box 7627, 1117 ZJ Schiphol Airport, Netherlands.
• The National Council on International Trade Documentation (NCITD) provides several low-cost publications that contain information on specific documentation commonly used in international trade. NCITD provides a free listing of its publications. Contact National Council on International Trade Documentation, 350 Broadway, Suite 1200, New York, NY 10013; telephone 212-925-1400.

Shipping

The handling of transportation is similar for domestic orders and export orders. The export marks should be added to the standard information shown on a domestic bill of lading and should show the name of the exporting carrier and the latest allowed arrival date at the port of export. The exporter should also include instructions for the inland carrier to notify the international freight forwarder by telephone on arrival.

International shipments are increasingly being made on a through bill of lading under a multimodal contract. The multimodal transport operator (frequently one of the modal carriers) takes charge of and responsibility for the entire movement from factory to the final destination.

When determining the method of international shipping, the exporter may find it useful to consult with a freight forwarder. Since carriers are often used for large and bulky shipments, the exporter should reserve space on the carrier well before actual shipment date (this reservation is called the booking contract).

The exporter should consider the cost of shipment, delivery schedule, and accessibility to the shipped product by the foreign buyer when determining the method of international shipping. Although air carriers are more expensive, their cost may be offset by lower domestic shipping costs (because they may use a local airport instead of a coastal seaport) and quicker delivery times. These factors may give the exporter an edge over other competitors, whose service to their accounts may be less timely.

Before shipping, the firm should be sure to check with the foreign buyer about the destination of the goods. Buyers often wish the goods to be shipped to a free-trade zone or a free port where goods are exempt from import duties.

Insurance

Export shipments are usually insured against loss, damage, and delay in transit by cargo insurance. For international shipments, the carrier's liability is frequently limited by international agreements and the coverage is substantially different from domestic coverage. Arrangements for cargo insurance may be made by either the buyer or the seller, depending on the terms of sale. Exporters are advised to consult with international insurance carriers or freight forwarders for more information.

Damaging weather conditions, rough handling by carriers, and other common hazards to cargo make marine insurance important protection for exporters. If the terms of sale make the firm responsible for insurance, it should either obtain its own policy or insure cargo under a freight forwarder's policy for a fee. If the terms of sale make the foreign buyer responsible, the exporter should not assume (or even take the buyer's word) that adequate insurance has been obtained. If the buyer neglects to obtain coverage or obtains too little, damage to the cargo may cause a major financial loss to the exporter

4.      EXPORT PRICING

Pricing strategy adopted by exporters with respect to the pricing of goods while marketing them to the ultimate consumer is key. An exporter may charge a uniform price in different markets of the world or he may practise price discrimination taking into consideration the situations prevailing in different markets. Various pricing strategies used in the international market are:

(a) Skimming Pricing Strategy: A pricing strategy in which exporter charges a very high price initially in order to recover the cost incurred on high promotional expenditure, research and development, etc., is known as skimming pricing strategy. After exploiting the rich market, the exporter can gradually decrease the price in order to increase his market share.

(b) Penetration Pricing Strategy: A pricing strategy in which an exporter I charges a very low price initially in order to get hold of the market and drive away competitors is known as penetration pricing strategy. Sometimes, such strategy is referred to as dumping. This strategy is suitable for the items of mass consumption.

(c) Transfer Pricing: Transfer pricing refers to the pricing of goods transferred from one subsidiary to another or to the parent Company. Due to this, profits of one subsidiary are transferred to another subsidiary or to the parent company. Transfer pricing decisions are affected by factors such as differences in tax and tariff rates, foreign exchange restrictions and import restrictions.

d) Marginal Cost Pricing: Marginal cost is the cost of producing one extra unit of a product. Under this approach, an exporter simply considers variable costs or direct costs while arriving at the price to be charged in the international market and fixed costs are fully recovered from the domestic market.

(e) Market Oriented Pricing: This is a very flexible method of arriving at a price as it takes into consideration the changing market conditions. The price charged may be higher when demand conditions are favourable and vice versa. This method is sometimes referred to as what the traffic will bear method. This is a very flexible and realistic method of pricing.

(f) Competitor's Pricing: Under this method, pricing strategy of dominant competitors is taken into consideration while arriving at the pricing decisions. A price leader is the firm, which initiates the price trends in the market. However, if the competitor's pricing policy is faulty, the followers will also land up with wrong pricing.

5.      EXPORT PRICING QUOTATIONS

FOB - Free on Board (or Freight on Board). This basically means that the cost of delivering the goods to the nearest port is included but YOU, as the buyer, are responsible for the shipping from there and all other fees associated with getting the goods to your country/address.

CIF- Cost Insurance & Freight CIF = FOB price + freight + marine Insurance

CNF  or C&F means "cost and freight" or "cost net freight" or FOB price + Freight•

and a CNF price includes the cost of shipping to the buyer. CNF is a term used in the export business and may also be indicated as C&F or CFR

Break Even Analysis

Exporter needs to be able to calculate BEP = FC / SP – VC Or FC / C• Where, SP = selling price , FC = Fixed Cost , VC = variable cost , C = contribution (i.e., profit)• It is the technique commonly used in costing to analyse the cost – volume – profit relationship.• Break even technique is concerned with finding out that level or point at which the sales will break even (no profit no loss)• The point or the level at which sales break even is called “ Break Even Point “