In theory, free trade opens up entirely new markets for U.S. companies. In reality, trade with some countries isn’t easy and it definitely isn’t free. Take three of the biggest players in today’s world: Brazil, China and Russia. Before rushing to enter these challenging markets, read these tips that could help you avoid costly mistakes.
Manage “Custo Brasil” With Partnerships
Brazil has the largest economy in Latin America and attracts a lot of American investment. The U.S. is the country's second-largest exporter – but navigating the customs process isn't easy.
Business people new to Brazil are often astonished by the effect of “custo Brasil” (Brazil cost) when it comes to doing business there. The term refers to the country's complex governmental regulations, tariffs and fees.
For example, to stay compliant with the state tax department, each company must create a Nota Fiscal for every transaction. This Nota Fiscal is the official invoice recognized by the government for tax reporting.
However, the biggest challenge will be working within this framework and adapting to the country's culture. In Brazil, business alliances rely heavily on personal relationships: Plan to travel there for in-person meetings and build in-country partnerships before launching a business initiative.
Imports and exports require a lot of paperwork; containers may be delayed for weeks due to minor bookkeeping errors. Close working relationships with in-country experts can help you navigate the import/export process and reduce “custo Brazil” issues.
China Is Better At Shipping Than Receiving
China is an export powerhouse, but it's far less friendly to importers. Taxes, fees, paperwork and even geography can increase costs for importers and delay shipments.
The country's high duty and tax rate can increase cost by as much as 50% above manufacturing and transportation costs. China requires that the product's declared value be “market price” instead of the more common “cost of goods sold” valuation. Geography is also an issue. China is a large country with an economy that has grown faster than its infrastructure. Time-critical materials often need to be stored near where they'll be used or sold.
The combination of taxes and logistics imposes quite a burden on importers to China, but there is a good option: bonded warehouses. As long as your products are stored in one, you won’t pay duty taxes until they’re moved. This keeps products in the country and closer to customers, and helps you manage cash flow by delaying tax payments.
Remember, too, that Chinese business culture and language barriers can make for a steep learning curve. An experienced business partner or consultant can be an invaluable asset.
Russia: Many Time Zones, Languages & Regulations
China is big, but Russia covers 11 time zones and recognizes 35 “official” and 100 minority languages. Even though foreign policy disputes between the U.S. and Russia have raised barriers to trade, few U.S. companies are willing to ignore the world's eighth-largest economy. Russia remains an attractive emerging market, albeit a challenging one.
Import/export clearance routines are clearly described, but require reams of paperwork and strict adherence to specific requirements. For instance, every material movement across the customs border must be tied to a specific contract. In addition, English isn't commonly spoken outside large cities, so you need good, knowledgeable translators to ensure the documentation is correct.
Still, moving products inside the country makes importing goods seem relatively simple. Plan ahead: There's no Russian version of Federal Express or similar carriers. You may wait days for an available cargo flight or even a truck. Look for an in-country partner with access to transportation resources.
Like Brazil, personal relationships are important in Russia — perhaps even more so. Be prepared to visit the country to establish relationships and conduct due diligence about potential partners because Russia is one country that struggles with corruption and bribery.
The takeaway to establishing trade relationships with all three countries boils down to this:
Plan, learn the appropriate local knowledge in fiscal and tributary areas, and understand and adhere to the law. Don’t try any kind of “easy way.” Following the rules will save more money in the long run and will build a solid, lasting business.
Peter Liston is Senior Director of Global Trade Compliance for Flash Global (http://flashglobal.com). He has more than 30 years of expertise in trade compliance with a special emphasis in the area of international import /export gained through various roles with the U.S. government and private sector. Peter's career includes roles as the Export Control Attaché at the American Embassy in Moscow and Assistant Attaché at the American Embassy in Vienna, Austria, as well as investigative positions with U.S./DHS Customs, its Representative to the FBI’s Joint Terrorism Task Force, and with the State Department. He received several awards and recognitions of his work in all the areas of his investigative experience. He holds a Bachelor of Science with honors from Northeastern University’s College of Criminal Justice. He can be reached at email@example.com.