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January 8, 2013 By Matias Maloberti

Foreign Sales Representatives: How to Select One

We’ve already discussed why you need a foreign sales representative – basically, to help avoid cultural stumbling blocks and connect you with the decision-makers in your target market.  Now let’s turn to how to successfully identify a foreign representative.

First off, how do you come into contact with potential reps?  I’ve seen three different ways: the rep approaches you, through your network, or through an introduction.

  • The rep approaches you.  A local representative might reach out to your company and request representational rights in their country or region.  Local reps often represent more than one company, and are always looking for new business opportunities.  If they think your product has potential in their country, they might proactively reach out to request representational rights.
  • You work your network.  Local representatives often have connections in other countries in the region, if they represent similar products.  They’ve probably met at conferences or trainings and have some idea about their colleagues’ success rate and reputation.  Try asking your representative in Country A if they can recommend a colleague in neighboring Country B.
  • You get introduced.  If the first two aren’t an option, don’t despair – the U.S. Commerce Department offers a matchmaking service between U.S. businesses and potential local partners.  This has a cost, but it could be a great way to identify potential partners.  (We’ll talk about Commerce’s services in more detail in a future post, but suffice to say they are super helpful to exporters!)

After you’ve identified one or more potential representatives, you need a screening process.  Here’s what has worked for me:

1.  Conduct an initial phone screening.

This is simply an initial screening to make sure that the potential rep seems to be a serious and responsible business person.  Call them up and have a basic conversation about their background and goals.  Do they have some knowledge of your industry and product?  Connections with decision makers?  A successful track record in representing similar products?  Do they seem honest?

As I said, this is just an initial screen, especially since you can’t really verify the veracity of their statements.  You’re just trying to get a general feeling about the rep and how they operate.

Finally, look out for red flags.  Any mention of “special costs” or “expediting approvals” may be a reference to bribery – which of course is forbidden under the Foreign Corrupt Practices Act.  Concerns in this area are a deal breaker and should immediately remove a potential rep from further consideration.

2.  Request an International Company Profile

If the potential rep passes your initial phone screen, you can move on to requesting an International Company Profile from the U.S. Department of Commerce.  This is basically a due diligence check on the potential representative and their company.  There is a fee for this service (last I checked, it was $600 for a small business), which is why you only want to request it for reps that have passed an initial screen.

According to their website, this report includes:

  • A detailed credit report on a prospective overseas sales representative or partner in approximately 15 days or by the date negotiated with the overseas’ office.
  • Banking and other financial information about the company
  • Market information, including sales and profit figures, and potential liabilities
  • The U.S. Commercial Service will also provide you with an opinion as to the viability and reliability of the overseas company or individual you have selected as well as an opinion on the relative strength of that company’s industry sector in your target market.

Like I said … super helpful.  Well worth the $600 fee, in my book.

Another possible red flag at this point would be if the person is overly concerned about a background check.  Granted, no one likes being “vetted” or investigated.  But if your potential rep flat-out refuses to undergo the background check, it’s probably not someone you want to work with.  (And yes, this really happens.)

3.  Make sure they have a valid U.S. Visa.

Last but not least, ask the potential rep to apply for a U.S. non-immigrant visa (or ask for a copy of their current, valid visa).  They will need one eventually to visit your offices for training or a client visit, so this is good to take care of up front. The visa application process involves further background checks (mostly for criminal and immigration records), so if there are any problems getting a visa, you want to know that up front.  It may not be a deal breaker, but definitely a relevant data point to consider.

4.  Sign a representational contract!

When you find someone that passes all of the hurdles above, congrats! You’ve found your new foreign sales representative.  You’ll need to hash out all the legal details – commission, exclusive rights, etc. etc.  and sign a formal agreement.

Filed Under: Defense Exports Guide Tagged With: foreign sales representative, International Sales

January 3, 2013 By Matias Maloberti

Military Export Basics: ITAR Myths and Realities

Registration and compliance under the International Traffic in Arms Regulations (ITAR) are a necessary but widely misunderstood aspect of international defense sales.  We previously covered the basics of ITAR.  Now let’s look at some myths around ITAR registration.

Disclaimer:  I am not a lawyer.  My intent here is to draw attention to the importance of complying with ITAR regulations. If you have questions about ITAR, I strongly urge you to seek legal counsel.  The DDTC webpage also has lots of helpful information.

Myth:  Registering with ITAR is too complicated.

Reality:  It’s actually not as bad as you might think.  The process is mostly completed online and DDTC has lots of helpful info about how to register.  You need to register and then update your registration once a year; brokers have to file a compliance report each year at the end of January.  Manufacturers and exporters need to apply for a license for each new sale.

Myth:  I don’t need to register because I’m not selling weapons.

Reality: You must register if your product is listed on the U.S. Munitions List.  It is not up to your discretion as to whether your product qualifies as a defense article.  The Munitions List covers a wide range of products, so the only way to know whether your item is covered is to check the list.  If you check and are still unsure whether your product qualifies, you can submit a jurisdiction request to DDTC.

If it’s on the U.S. Munitions List and you’re planning to export it, you must register with ITAR.

Myth: I don’t need to register because I’m not selling to the military.

Reality:  Again, you must register with ITAR if your product is listed on the U.S. Munitions List and you’re planning to sell overseas.

Myth:  I don’t need to register because I haven’t made a sale yet. 

Reality:  You must register with ITAR before you enter into talks with foreign clients.

Some of the confusion here may arise from the ITAR registration vs. license requirements.  ITAR registration is for an entire company for the duration of one year; it’s a blanket registration to enter into negotiations for international sales.

After you register under ITAR, you’ll submit an export license request for every sale. For the license request, you’ll have to submit information about the particular purchaser and the details of the product being sold.  A new export license is required for each new sale.

While some companies try to put off registering under ITAR, I think they’re doing themselves a disservice.  It’s better for the company to be registered early, before they seek to enter the international market.  You never know when an opportunity may arise, and you don’t want to have to cut off talks because you haven’t yet filed your ITAR paperwork.  This recently happened with a client of mine – they were negotiating the sale of a non-USML product when the client asked to add a defense article to the package. The company hadn’t yet registered with ITAR, so they couldn’t pursue the deal.

Really, as with all legal matters, it’s better to be safe than sorry – get the ITAR registration done up-front, as soon as you have an inkling that you might like to enter the international market.

Myth:  I can get a consultant (or assistant, or part-time legal counsel) to do my ITAR compliance.

Fact:  You must assign a full-time employee as your ITAR compliance officer, and only certain levels of employees qualify.  For example, an assistant or part-time employee doesn’t qualify because they may not have the authority within the company to implement effective compliance policies.

DDTC also has helpful guidance on the elements of an effective compliance program (pdf file).

 

What other “myths” have you heard about ITAR registration?  What’s your experience with registration and compliance?

 

For more on ITAR:
See my previous post: What is ITAR regulation?
And DDTC has lots of information on ITAR here.

Filed Under: Defense Exports Guide Tagged With: ITAR Registration

December 17, 2012 By Matias Maloberti

International Trade Shows: Creating a Strategic Plan

As I mentioned, I recently attended Exponaval 2012, and I want to share some tips for successfully participating in international trade shows.  I’m not talking about the basic logistics – getting to the fair and setting up your booth – but rather about the strategic planning that can help you take your participation to the next level.  The biggest theme here is to go in with a goal and a strategy – who you want to reach at the conference, and how you will get in touch with them.

Research the show:

  • Get the participant list.  This is possibly the most important thing you can do to make your participation a success.   You might have to ask the organizers, or work your contacts, but it’s essential to find out who be there to set your goals for the show.
  • Find out as much as you can about the physical layout of the venue – the better you understand the geography, the less time you’ll waste wandering around.  You’ll also be able to identify the high-traffic areas and figure out where the big name companies will be.  Which brings us to …
  • Be smart about picking a booth.  A large booth will be very costly – and maybe isn’t really necessary. If you get a huge booth and can’t fill up the space, that doesn’t look great.  Location may be more important than booth size – a small booth on the “main drag” might get you more visitors than a huge booth in some hidden corner. Are other companies in your field participating?  Maybe you want to be located near your peers.
  • Use USG resources.  Did you know that the U.S. Commerce Department offers all kinds of background information on different countries?   If the expo is in another country, make a point to request a meeting at the U.S. Embassy beforehand – they can help you with all kinds of information.  (I’ll have a future post on all the USG resources available to exporters – there are lots!)

Reach out ahead of time:

  • Once you get ahold of a participant list, identify your “targets.”  Who are the decision-makers you most want to connect with?  Compare the participant list to your company’s contacts and see if your company already has any connections to the participants or their offices.  Don’t be afraid to work your contacts to see if they can set up an introduction to your targets.
  • Reach out BEFORE the conference to set up meetings with your target contacts.  Even if it’s 5-minute coffee break, make a plan.  It’s difficult to make real connections just wandering around and trying to strike up conversations.  It’s also unlikely that you’ll just bump into the people you most want to meet.  Be strategic and contact them ahead of time.
  • Stay in the official hotel.  It might cost more, but it’s worth it.  The high-level event participants – those decision-makers you really need to reach – will be staying at the same hotel.  Five minutes with them at the hotel bar, or even in the elevator, is more than worth the additional cost.  (And if it’s really out of reach?  Consider housing one or two members of your delegation at the official hotel, and the support staff at a low-budget place across town.)
  • Don’t miss the chance to network with other vendors, too.  Any products you especially want to check out?  Any companies you’d like to talk with to discuss collaboration?

Plan your participation:

  • Create a schedule.  Check out the official agenda and see if there are any official events or seminars you don’t want to miss.  Work around those events to set up pull-aside meetings and coffees with your target contacts.
  • Make sure your booth is covered.  Ideally, you should have a few staff on hand at all times.  Have support staff there to handle the idle passers-by, who are probably just window shopping and aren’t seriously interested (or don’t have the authority) in purchasing.  Your senior delegation should be focused on identifying and connecting with high-level target contacts.
  • Set up times for contacts to visit your booth.  A promise from an admiral that he’ll “stop by” your booth is nice, but securing a 15-minute appointment at 10am to show him your product is much more valuable.

As I said, this doesn’t cover the basic logistics of participating in international trade shows – making sure you have an attractive booth, lots of promotional materials, etc.  In fact, it’s all too easy to get caught up in those logistics and forget about your real goals of the conference.  It’s not just about showing up and staffing a booth, it’s about the chance to connect with potential clients, especially with high-level decision-makers.  The tips above should be a good starting place to strategize your participation in your next show.

 

Do share … what is your best tip for getting the most out of international trade shows?  

Filed Under: Defense Exports Guide Tagged With: international trade shows

November 5, 2012 By Matias Maloberti

Military Export Basics: What Are NSNs?

What are National Stock Numbers (NSN)?

A National Stock Number is a unique identifying number applied to an item that is repeatedly bought, issued, and used throughout the federal supply system.  According to the Defense Logistics Agency, NSNs are used to identify and manage nearly every imaginable item, from aircraft parts to  light bulbs.  NSNs are an essential part of the military’s logistics supply chain.

Why are NSNs important for Foreign Military Sales (FMS)?

The FMS process is used to allow foreign customers to procure standard USG items.  An item is considered “standard” military equipment when it is assigned a National Stock Number.  Seeking to register products with an NSN is thus an important first step in an FMS sales strategy.

The NSN is officially recognized by the United States Government, the North Atlantic Treaty Organization (NATO), and many governments around the world. Federal agencies, including the Department of Defense (DoD), use the NSN to buy and manage billions of dollars’ worth of supplies each year. The Federal Logistics Information System (FLIS) catalog currently contains about 14 million U.S. NSNs. In addition, non-U.S.NATO members hold approximately eight million active NSNs that are assigned to items produced in their countries.

For Foreign Military Sales purposes, the NSN provides a unique identifying number for each piece of equipment.  Although non-cataloged items (items without an NSN) can be occasionally purchased through FMS, the DoD acquisition system and the FMS procurement process rely heavily on NSNs.  Foreign Customers may request a specific item by NSN, ensuring that the DoD procures exactly what they want.  For U.S defense companies, having their products catalogued with NSNs becomes a strong competitive advantage for international arms sales under FMS.

How do items get assigned an NSN?

The DLA Logistics Information Service assigns all NSNs through a review process known as cataloging. Requests for NSNs are initiated whenever an item is repeatedly ordered or when a new weapons system is being developed. The U.S. military, government agency, or NATO country may submit a catalogue request when they identify a need for a specific item. Manufacturers and suppliers may not request a NSN.

How can Defense Companies get their products catalogued with an NSN?

While manufacturers cannot directly request an NSN, they can – and should – be vigilant to ensure that their products are catalogued. Effectively, in order to get a product catalogued, the company needs to sell it to the government.  Once they make that first sale, the company should follow-up to make sure that their case manager submits an NSN request for the product.  Companies can check on DLA’s website to see whether their product has a pending catalogue request.  If not, the company should ask their case manager to submit one (and should provide any necessary information as well).

For a great reference on National Stock Numbers, see the Defense Logistic Agency’s NSN information booklet (pdf file).

 

What other questions do you have about National Stock Numbers?  What is your experience in getting catalogued?

Read more in my series on military exports:
What is FMF?
What is ITAR Restricted?

 

Filed Under: Defense Exports Guide Tagged With: National Stock Numbers, NSN

October 31, 2012 By Matias Maloberti

Military Export Basics: What is FMF?

 What is the Foreign Military Financing Program? 

Foreign Military Financing (FMF) provides USG assistance funds for allied foreign countries to purchase U.S.-made military equipment and training.  According to the Defense Security Cooperation Agency,

FMF helps countries meet their legitimate defense needs, promotes U.S. national security interests by strengthening coalitions with friends and allies, cements cooperative bilateral military relationships, and enhances interoperability with U.S. forces.  Because FMF monies are used to purchase U.S. military equipment and training, FMF contributes to a strong U.S. defense industrial base, which benefits both America’s armed forces and American workers.

The State Department’s Political-Military Bureau sets Foreign Military Financing policy, and the program is administered by the DOD’s Defense Security Cooperation Agency (DSCA).  Congress appropriates FMF funds as part of the annual Foreign Operations Appropriations Act (the State Department budget).

How does FMF work?

Most FMF-funded purchases are made through the Foreign Military Sales (FMS) framework.  A few countries have received exceptions to use FMF funds for Direct Commercial Sales.  Foreign Military Financing funds are budgeted three years in advance, as part of the regular State Department budget cycle.

For FY2011, the total funding for the FMF program was $5.37 billion. The FY2012 estimate was $6.31 billion.  (Source – pdf file; see p. 171)

How does an FMF-financed sale work?

For the most part, an FMF-financed sale works just like other sales under the Foreign Military Sales process.  The main difference is that funding comes from the FMF program rather than the foreign government customer.  (A sale may be fully funded through FMF, or may be partially FMF-funded and partially paid by the foreign customer.)  This has the benefit of helping allied countries buy military equipment they otherwise might not be able to afford, creating additional sales opportunities for U.S. defense companies.

For U.S. defense companies, ensuring that Foreign Military Financing funds are available and budgeted to a particular sale will probably require additional coordination during the pre-LOR stage of the FMS process.  We’ll discuss the pre-LOR process in more detail in a separate post.

FMF vs. FMS

Clients often ask me about the difference between Foreign Military Financing and Foreign Military Sales.  In reality, FMF and FMS aren’t directly comparable.  FMF provides funding for defense purchases, while FMS is the program for managing the sale and transfer of military items.  Sales funded by FMF are almost always processed through the FMS program.  (Only a few countries have exceptions to use FMF funds for Direct Commercial Sales.)  The FMS program, on the other hand, may be used for FMF-financed sales, or for sales paid for by the foreign customer.

Filed Under: Defense Exports Guide Tagged With: FMF, Foreign Military Financing, Military Exports

October 10, 2012 By Matias Maloberti

Military Export Basics: What does ITAR Restricted Mean?

The International Traffic in Arms Regulations (ITAR) is a set of United States government regulations that controls the export and import of defense-related articles and services on the United States Munitions List (USML). According to the Department of State, the USG “strictly regulates exports and re-exports of defense items and technologies to protect its national interests and those interests in peace and security of the broader international community.”

Under ITAR, all companies that sell, manufacture, or export defense articles are required to register with the USG.  Registered companies may then apply for an export license, which grants formal permission to go ahead with a specific defense sale.

Who runs ITAR?

The Directorate of Defense Trade Controls (DDTC), part of the Bureau of Political-Military Affairs in the U.S. Department of State, is responsible for controlling the export of defense articles and services on the United States Munitions List (USML, pdf file).

What does ITAR cover?

ITAR covers all items on the U.S. Munitions List (USML).  You can find the full, up-to-date list here (pdf file).  Items on the list fall into numerous categories, covering everything from guns to ammunition, missiles and launchers, explosives, ships, aircraft, tanks and vehicles, protective gear, electronics, sights, chemical and biological agents, spacecraft, nuclear weapons, lasers, submarines, and miscellaneous.  Pretty all-inclusive.

If you review the list and aren’t sure if your product would qualify, you can file a Commodity Jurisdiction request.

Can you export things on the ITAR list?

YES.  Mostly.

… How? 

First, your company MUST register with DDTC if you sell, manufacture, or export defense articles.  This is an essential first step, even if you are just starting to think about exporting.  Registering does not grant permission to export, but rather it identifies you as someone eligible to apply for an export license.  You must be registered to enter into discussions with potential customers for the export of ITAR restricted items; when you register you also commit to completing annual compliance reports.

You will apply for an export license when you have a specific sale lined up.  You’ll need a new export license for every additional sale, since the permits are country-specific.  In adjudicating your license, State may ask other USG agencies (like the DOD) to review your request and make a recommendation.

The licensing process is now fully automated through the DTrade online system.  Learn more about DTrade here.

That sounds complicated.

A little.  Which is why FMS may be a good option for companies just starting out with defense exports.  Under FMS, the DOD will handle the process of obtaining an export license for ITAR restricted items.

How can I learn more?

The DDTC webpage is quite good and has a handy getting-started guide (pdf file).

 

What other questions do you have about ITAR restrictions and defense export licenses? 

Filed Under: Defense Exports Guide Tagged With: ITAR Registration

September 19, 2012 By Matias Maloberti

Military Sales – Out with the Old?

Military Sales – Out with the Old?

I wanted to share a conversation I had recently with one of my clients. I’m always looking for ways to explain how international military sales are different from sales in the U.S., and I think this was a good example.

We were discussing the benefits of my client’s product, and my client mentioned, “This new unmanned technology will even allow them to completely withdraw the legacy systems from their armed forces!”

old truck

Out with the old?

No.

It might seem counter-intuitive, but no developing-country military will seek to procure a technology that will replace their existing equipment with fewer systems – or, worse yet, fewer staff. Usually, militaries in developing countries are not only under budget pressure, but also are under political pressure to justify their own existence.  In that situation, their primary goal is to preserve the equipment and resources they do have, and then if possible, to expand their capacity. In their fight for the very existence of their armed forces, when it comes to their own identity, quantity matters more than quality.

This is difficult to explain, so let’s look at this from the perspective of a Navy officer in a developing country (which happens to be my experience). The officer’s primary goal is to keep their equipment operational with limited resources, and to train their staff as much as possible. He probably has many more staff than equipment to train them on.  Operating a frigate designed for a 90-person crew with 120 sailors does not represent inefficiency; rather, it is a way to train more people in less operational time.  Given the tight budget and shifting political priorities, the armed forces constantly resist attempts to retire old systems or reduce their operational time.

My point is that if you attempt to sell a new technology to this officer on the grounds that it would allow him to replace his current equipment with fewer–or unmanned– systems, your sales pitch will fall on deaf ears. This officer’s primary goal is to preserve the equipment he already has, and to maintain the size of his service (in systems and men) at their current levels.

So, how should you pitch a new piece of state-of-the-art equipment to this officer? As a one-for-one replacement or as complement to his existing equipment. The new technology should not pose a threat to his force levels. On the contrary, it should be a force-multiplier.  It should help him to train more people, and it should be appropriate for his staff’s skill level, to ensure that they will be able to correctly operate and maintain it.

Old soldiers never die: WWII ATFs are still used as patrol ships around the world. Every asset counts!

In short, it is unlikely that a developing-country military will sign on for any program that – explicitly or implicitly – might lead to budget or equipment cuts. Especially in cash-strapped and politically-challenged militaries, their main focus is on maintaining and expanding their military resources.

And really, this isn’t all that different from the U.S. military; only the scale is different. Consider telling the USAF that they won’t need the Next Generation Bomber because you’re developing a Next Gen UAV that can do the job.  Clearly, you won’t make many friends. Sometimes, the very identity of a service is at stake. Cuts could also imply plant shut-downs or base closures, which causes job losses – never popular.

So, for international military sales, just adjust the scale. Before offering a replacement, think about the context.  For a foreign navy, a patrol boat could be as important as an aircraft carrier is to the U.S. Navy. Don’t pitch a product as a replacement of a system that reflects on the identity of a service. Remember you are not there to lead a reduction of their military, you are there to help them to improve their capabilities. Pitch your product as a complement — a force multiplier — and demonstrate all the ways that it will help the military expand their capacity and keep their numbers strong.

 

photo credit: Robb North via photo pin cc / Gaceta Marinera Digital

Filed Under: Defense Exports Guide Tagged With: equipment replacement

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