Exporting to the world; a manual of practical export for all who are interested or engaged in foreign trade

Book i \£-l£l Copyright^

COPYRIGHT DEFOSm

XPORTING

TO THE WORLD

A Manual of Practical Export for All Who Are Interested or Engaged in Foreign Trade

BY

A. A. PREGIADO

Former Director of the United States Government Committee in the Republic of Chile, Author of "America's Monopoly in Latin-American Trade," "Foreign Trade a Necessity, " "How Export Shipments Are Financed" etc.

THE JAMES A. McGANN COMPANY

0^

Copyrighted, 1920

By

The James A. McCann Company

All Rights Reserved

Printed in the U. S. A.

An Arkwimlpfcgmettt

In the preparation of this volume the author is indebted to a number of organizations and individuals whose aid and co-operation have been of inestimable value. I refer to

The National City Bank, New York City.

The Irving National Bank, New York City.

The Guarantee Trust Co., New York City.

The National Foreign Trade Council.

The Business Training Corporation.

The American Manufacturers' Export Association.

The Pan-American Union, Washington, D. C.

The Department of Commerce.

Frank B. Hall & Co.

Dr. E. E. Pratt

Mr. D. E. Delgado.

Mr. Maximilian Aviles.

Mr. J. W. Sanger.

Mr. John Walsh.

Mr. Gilbert H. Montague.

Mr. Archibald J. Wolfe.

Mr. O. K. Davis.

Mr. W. J. Riley.

Mr. John E. Gardine

Mr. James H. Carter.

Mr. Albert E. Parker.

Chapter X

j COMBINATIONS IN FOREIGN TRADE . . 114

The Webb-Pomerene Law. Criticism and defense of Webb-Pomerene law. Provisions of the measure. How combinations are made under the Webb-Pomerene law.

CONTENTS ix

Chapter XI p

"One price to all" poor policy. System of discounts should be flexible. Quoting prices in American currency. Quotation symbols must not be confused. Meaning of different symbols. Methods of computing C. I. F. prices. Terms upon which goods are sold.

Chapter XII

Human nature same the world over. Why manufacturers refuse to extend credit overseas. History of credit in foreign business. Credit information not difficult to obtain. What is necessary in credit information. Long credits not necessary in export trade. How to collect overdue accounts in foreign field.

Chapter XIII HANDLING AN ORDER 201

Method of handling orders determines manufacturer's success. Customer's instructions must be closely followed. Confidence of foreign customer must be won. Executive ability in handling orders.

Chapter XIV

Inexperienced exporters are to blame for poor packing. Merchandise must be securely packed. Poor packing means loss of orders. Factors to be considered in packing for export. Kind of packing required for shipments for export. How machinery is packed for shipment. Foreign requirements must be met in packing. Effect of weight on customs duties. Regulations in countries that may affect packing. How cases for export should be marked.

Chapter XV HOW SHIPMENTS ARE MADE 229 Method of shipping goods from interior

Routine involved in shipment. Documents required. How bills of lading are made out. Shipowner's liability to the shipper. Consular invoices. Special regulations in various countries.

x CONTENTS

Chapter XVI Page THE FOREIGN FREIGHT FORWARDER 243

Foreign freight forwarder must be well informed. Forwarder should have his own warehouses. How foreign freight forwarder operates. Methods differ on the Atlantic side. Large concerns use freight forwarders. What forwarder charges for his service. Advantages of freight forwarders. Criticism against forwarding business.

Chapter XVII

History of "underwriters." Principles of Marine Insurance. What is written in Marine Insurance policy. Explanation of clauses in Marine Insurance policy. How Marine Insurance is to be taken out. General and particular average in Marine Insurance.

Chapter XVIII

American Exporters have always enjoyed good banking facilities. Methods of financing shipments for export. Selling goods on open credit basis. How commercial credits are opened. Acceptance credits. Bills of exchange or drafts.

Chapter XIX AMERICAN BANKS IN FOREIGN TRADE AND

FOREIGN INVESTMENTS 299

Foreign branches of American banks. There is limit to bank's co-operation. Federal Reserve law permits foreign branches. Credit information available to client. How bank advances money against shipments. The foreign trade department of a bank. How banks extend credit. The Edge Act to extend long credits. How corporations may be formed under Edge Act. Making investments in foreign countries. Foreign investments create permanent market.

CONTENTS xi

Chapter XX Page OUR MERCHANT MARINE 333

Europe's advantage in ship tonnage. Spectacular growth of Merchant Marine. How other countries suffered during war. Ocean routes that vessels follow. History of American Merchant Marine. Government activities in shipping industry. Future of American Merchant Marine.

Chapter XXI

Reports of specified products valuable. Regular publications of the Bureau. Special bulletins of the Bureau. Bureau serves as information depot. How district offices may help exporter. How to use trade opportunity service. American consuls as trade representatives. How to make use of consular service. Other sources of export information. Trade journals must not be overlooked. A list of books exporters should have on hand.

Chapter XXII

Latin America, Mexico, West Indies, Central America. South America as a field for American merchandise. The Near East. The Far East. The Commonwealth of Australia. Africa as a market for American goods. Europe. Canada.

Chapter XXIII

Caution. Dangers resulting from neglect. Trademark regulations vary in all countries. Requirements in Code-law countries. How the trademark pirate operates. Marks capable of registration. Importance of registration.

Chapter XXIV PUBLICITY IN FOREIGN COUNTRIES 398

American Press associations now active in foreign field. Publicity machine should be organized.

APPENDIX '03

INDEX 423

America is beginning to think internationally.

We have assumed a new mental attitude towards our neighbors of other lands and climes. We are learning to deal with them, talk with them, think with them, and act with them in affairs of international importance. Broadly speaking, their affairs are our affairs, for the interests of all are becoming so closely allied in world matters that statesmen, with rare foresight, have seen the necessity of the creation of a concrete organization such as The League of Nations, where all matters of dispute may be sifted lest from some irresponsible source an attempt be made to again compromise the peace of the world.

Naturally, the United States of America is sharing in this intelligent advance toward international peace and good will. The Great War has given us the proper inspiration to participate more fully in world matters than we have done in the past. We have come to realize that such participation — be it commercial, political or spiritual — is not only of lasting benefit to the American people as a whole, but to the world in general. Moreover, it is a necessary duty, because of our industrial and economic stability, that we owe to other nations whose development has been retarded as the result of conditions peculiar to individual political units.

We have become a great commercial and industrial power as well as a nation of tremendous political influence in world matters. We no longer think or act in terms of counties or states or sections, but in terms of nations and continents. We are no longer satisfied in confining our activities and thoughts within the boundaries of the geographical position we occupy on this hemisphere. We want to spread out. We want to widen our activities. We want to lengthen our vision. We want to become acquainted with our neighbors on this earth.

Before the war Europe furnished great quantities of supplies to the rest of the world. The wares of Germany, England, France, Belgium and Italy vied with one another on the shelves of foreign buyers. Europe was a great market place. It is none the less true, however, that we, also, shared a large amount of

xiii this business with our competitors overseas ; .but the magnitude of our commercial activities at home, of which we were thoroughly proud, produced an atmosphere of self-satisfaction so dense that few of us really knew, much less cared, how large our foreign business had really grown.

General ignorance of our export trade volume has inspired many to say that "the United States is not an exporting nation," and that "we can never compete with the pioneer exporting nations of the world/' We are not a great exporting nation in the sense that Great Britain is because we do not depend for our existence on what we sell to the world. England must sell to the world in order to live. Her home market is insufficient to devour the greater portion of the things she produces. The same was true of Germany before the war, of France and Italy and Belgium- It was necessary for these nations to market their articles in foreign countries because their own consuming populations were insufficient.

The reader's doubts as to America's strength in export trade will be removed by the following comparison which is made from the statistics of the United States Department of Commerce, July, 1918, referring to the foreign trade of belligerent and neutral countries in 1913, a year before the war, which must be considered as a normal one:

Export trade of During 1913

United Kingdom 3,089,353,000

Now let us go back a few years to ascertain America's activities in export trade. The following figures, while including the exportation of raw material as well as manufactured articles, nevertheless serve as a striking illustration of the volume of our foreign business for the past fifty years:

Fiscal Year. Exports.

1850 $144,375,726

1875 513,442,711

1890 857,828,684

1900 1,394,483,082

1905 1,518,561,666

1910 1,744,984,720

1911 2,049,320,199

1912 2,204,322,409

xiv

These figures, dry as they may seem, tell the story of a brilliant development of foreign markets for American products. They refute the argument that this country is not an exporting nation. As a matter of fact, ever since 1874 we have been selling to the outside world more than we have been buying.

It is also contended by those who have not made an analysis of our export trade that the larger part of this gigantic volume is made up of foodstuffs, and other crude materials — that very little of it represents manufactured articles. We need only to (mote the figures of the United States Department of Commerce for a, period prior to the war, as the abnormal conditions during the European conflagration should not be referred to in making comparisons.

Taken from a Department of Commerce report published in 1913 we quote the following:

"The success of the American manufacturer and the American workman in competition in foreign markets is sharply illustrated by the fact that the exportation of machinery from the United States in the year which ends with June, 1913, will exceed 200 million dollars, against less than 75 million a decade earlier, an increase of nearly 200 per cent., while the total exports meantime were increasing about 72 per cent.

"One striking feature of this growth is the fact that large gains have been made in exports of machinery to the other great manufacturing section of the world, Europe. Of metal-working machinery, the exports to Europe amounted to 2 3-4 million dollars in 1902, and in 1912, 91-3 million; of automobiles, 3-4 of a million in 1902, and 7 1-2 million in 1912 ; agricultural implements, 9 million dollars in 1902, 16 million in 1912 ; sewing machines, 21-4 million dollars in 1902, nearly 41-2 in 1912; and typewriters, 2 1-2 million dollars in 1902, compared with practically 8 million in 1912."

The foregoing figures represent only one division of manufactured articles. Of all our exports in 1880 only 14.78 per cent, represented our total manufactured goods, not counting foodstuffs. In 1913, however, the increase was phenomenal. In that year our manufactured goods represented 48.8 per cent, of our total export business. Crude foodstuffs represented 32 per cent, of our exports in 1880, but in 1912 a marked decline to 4.6 per cent, was shown. Foodstuffs partly or wholly manufactured also took a tremendous drop. It is in the export of manufac-

xv tured articles, therefore, that the United States has shown the greatest gain in recent years, even eclipsing the record of such manufacturing nations as the United Kingdom, Germany and France.

However, not until the war clouds settled in Europe, and industry was forced to close down in that continent did we realize the vast possibilities of developing the foreign markets to such an extent that we may always maintain a commercial and financial supremacy over all competitors. Peoples from other countries who had gone to Europe for their supplies in peace time now shopped in the United States. Our goods were introduced for the first time in many lands where the European brand practically had had the right of way. Our commercial travelers for the first time set foot in strange countries and influenced strange customers to test our lines. Our industrial plants made engines of destruction by night, and engines of peace by day. Our wares found cargo space in ships that sailed the seven seas. Purchasers for American-made goods were now to be found in the commercial centers of every continent. Our business men began to gather at the behest of our government and foreign trade organizations for the purpose of discussing further plans for intensive development of the foreign markets. The government's cooperation was assured in the gathering of commercial information, and other necessary data for the use and disposal of American industry. The study of export trade technique was encouraged in every section of the country. Schools took up the study of modern languages. Universities introduced courses in Foreign Trade. Newspapers, magazines, trade journals — all joined in the popular cry of the day, "Let's go after foreign business."

The old days are gone- Pre-war conditions — economical, industrial, and political — have given away to an awakened international conscience. The tremendous shuffle that the terrible war caused wreaked havoc with the old order of things. The commercial center of gravity that had rested in the United Kingdom for centuries has now shifted to America. The American dollar is becoming as well known the world over as the British pound sterling.

It has been contended that with the establishment of peace in Europe the United States will slowly but surely lose her hold on those customers who had been accustomed to buying goods in the Old World before the war. As these lines are written

xvi

Europe is still in a chaotic stage. In view of the wanton destruction that the war wrought it seems doubtful that a rapid return to normal conditions is possible — and in this readjustment the assistance of the United States is necessary.

Regardless of the loss of a certain volume of business which American manufacturers may experience as Europe returns to its peaceful labors, the preservation of a tremendous export trade is practically assured for this country. The remarkable growth of our exports during the war period has served a double purpose. It has advertised American-made goods to new customers, and it has afforded foreign buyers the opportunity of comparing the merits of the brands that come from America with those of our competitors. The success which we shall attain in holding our share of the world business will depend, not so much upon our ability to produce in tremendous quantities, but upon our ability to make the superior quality of an American-made article the distinguishing characteristic.

The American "Renaissance" of exporting has drawn thousands of men from their former labors to new opportunities. Manufacturers and merchants are daily looking about for men competent to conduct their export trade or to visit foreign territories to open up new business. Needless to say, there is a scarcity of experienced men in comparison to the great demand that exists. To thousands exporting is a new trade that requires training and study. This volume is intended to offer practical suggestions to manufacturer and merchant as well as to the young man who is endeavoring to grasp the export trade "slant" so that he may become better equipped to engage in some phase of exporting.

These chapters are based on extensive travel in foreign countries as well as on personal investigations that have sent the author into the offices of many successful export manufacturers who have been extremely generous in offering their experiences that they may be of some service to others.

xvn

Chapter I PRINCIPLES OF EXPORT TRADE

Exporting not as difficult as many suppose it to be — Same

business principles govern the world over unfamiliar

conditions in exporting must be met success in exporting is measured by seriousness.

American business men who have not ventured into the field of exporting are imbued with the false idea that export trade involves a business practice distinctly different from that at home, that the ordinary rules of conduct peculiar to the American business organization must be placed aside when a plunge into foreign fields is decided upon, and that in order to master export trade technique all customary principles must be dropped so as to begin all over with a clean slate. This is not so. The theory that "you cannot teach an old dog new tricks" does not apply here. The business man who has successfully grasped the principles of doing business at home will learn that the mastering of the technique of exporting is accompanied with very little difficulty.

Same Business Principles Govern the World Over

Political boundaries, or different forms of government, or distinct climatic conditions do not determine the principles that govern commercial practice. The merchant in Canada or Java buys goods in order to sell at a profit just like the American merchant who is pursuing the same object. A merchant in Argentina is under a moral and legal obligation to pay for a bill of goods purchased in the United States or in another country, even though he is subject to the laws of his own country only. His obligation to pay is just as binding as if he were doing business across the street from the foreign merchant who supplied him with the merchandise. The principle that governs a sale in the United States is the same as the principle that governs a sale the world over. The heart throb of commerce is the "turn over," whether it be in Singapore or in Quito. The stimulant that influences the "turnover" is quality, utility and price. The merchant depends on either of these essentials ordinarily for the success of his business. To sell his goods he must prove quality, and that they are of some service to the purchaser. The price must be agreeable. The Chinese merchant will not buy an article unless that article can be sold to a customer to whom it may be of service, or to whom it may have a strong personal appeal. Neither will be buy unless he is quoted a price that will enable him to sell at a profit. These conditions of a purchase or sale are not subject to the vagaries of boundary lines, different languages or distinct customs.

Exporting Not as Difficult as Many Suppose It To Be

Export trade is not difficult to handle. Neither is it charged with such grave mysteries as those who fear to risk it may lead one to believe. "How can I do business with a man whom I have never seen, and whose methods of doing business I do not understand ?" inquires a merchant who receives an order from a man in Buenos Aires for machinery. He forgets that he is daily selling goods to hundreds of customers he has never seen in his own country. He turns down the order, yet the very same day he instructs his staff to fill an order for a stranger in California who is known to him only through correspondence.

What frightens the merchant in refusing the order from far-away Argentina?

It is ignorance of the mechanics that would be involved in the transaction. It is the risk that he fears he may have to take in accepting the order. He knows nothing about Argentina. To him it is a strange land. The language is not his own. Shipment of goods to a customer thousands of miles away does not appeal to him, and the question of payment is disturbing.

In doing business with a man in California, however, the merchant corresponds in the English language. He is in close touch with his customer, although he may not know him personally. He may be able to converse with him over the long distance telephone or send him a telegram and receive an answer in a comparatively short time. He has an adequate idea of the market in that state. He knows how to obtain his money in payment for his goods. Although his customer is many miles away he

PRINCIPLES OF EXPORT TRADE 3

feels a sense of security from loss because his shipment is subject to the same commercial laws with which he is entirely familiar. Moreover, he has no customs regulations to worry about. He knows only one money standard — and that is the gold standard! of the United States. As a rule the American business man is conservative when it comes to making radical departures from a set policy. Anything that involves the incorporation of new details into the routine of the business, and that is not in accord with the established procedure, may invite antagonism at first. Going in for exporting is not a revolutionary act that decrees the death sentence upon the set principles of business at home. It is merely the determination to go after new business — to broaden the business vision and scope of the American merchant or manufacturer by acquiring a knowledge of foreign countries and an idea of the possibilities of those countries for the development of American commerce.

With little study and education on essential details regarding foreign trade the merchant who receives an order for machinery from Argentina may turn it into cash. He need not worry about the difficulty of communicating with his customer. A cable to Buenos Aires will reach its destination almost as soon as a telegram to California. If he wishes to communicate with his customer by mail there are any number of competent translators at all the principal ports who can handle his correspondence in the language required. The collection of money has been reduced to a very simple undertaking within recent years. The. principal American banks in all our large cities are fully equipped to take charge of collections in countries where the merchant may have bills outstanding. 1 It will be seen, therefore, that the merchant will experience little or no difficulty in doing business with a customer in Argentina in spite of such apparent barriers as difference in language, customs and laws.

Unfamiliar Conditions in Exporting Must Be Met

In venturing into foreign countries in the search of new cus-

1 — Mr. J. McCurrah, vice-president of the Continental and Commercial Bank, in an address before the Sixth National Foreign Trade Convention in Chicago, April 24th, 1919, said: "A careful analysis of the world's international business will show that the percentage of losses on foreign sales has been very much les6 than the percentage of losses in domestic transactions. While it is generally understood that the American manufacturer must of necessity be prepared to grant longer time credits than we have granted in the past, these credits will be readily financed by the American banks', if the exporter will give the bank an opportunity to investigate the moral and financial standing of the foreign buyer."

tomers, however, the merchant will learn that before he can make any strenuous efforts to develop a given market he must familiarize himself with a series of details such as have been foreign to his business routine in the domestic field. His foreign correspondence methods may disturb him at the beginning. His business may require correspondence in several different languages. This may mean the addition of competent translators to his organization. The difficulty of communicating promptly by mail with his overseas customer may tempt him to abandon his even temper at times. It takes a letter much longer to reach its destination in a foreign country than it does at home.

Each individual country has its own problems. Climatic conditions may limit the merchant's development of the market if he is engaged in selling seasonable goods. He may be forced to alter his packing methods in order to meet the requirements of his foreign customer. He must determine a price policy. Is he to charge more for his commodities in foreign countries or is he to make the same charges that he asks his domestic customers to meet, or is he to sell at a lower figure than he does at home? He must also decide whether he is to give reasonable credit to his foreign purchaser — a very important phase of exporting that requires early settlement. 2 The method of obtaining payment for his goods may confuse him to some extent, but as has already been stated, investigation and study of existing ways and means will convince the merchant that it is not as difficult as it may seem. He will learn, also, of new money values, and that the American dollar does not always maintain its par value in foreign countries. He will also become familiar with shipping details such as are peculiar to maritime commerce only. These are only a

2 — "To ascribe the reluctance of many /.merican manufacturers to grant to foreign customers credit tenms, regarded by t/he latter as reasonable, to 'ignorance' is unfair in many cases. It has, indeed, happened that a manufacturer has refused to accommodate in the matter of credit a house of absolutely assured standing simply because 'cash against documents in New York' is his rule, but most American manufacturers declining to do business abroad on a credit basis do so because they feel that in some way or other they are not equipped for this class of business. The difficulty of obtaining reliable credit information regarding the financial standing of foreign customers, the danger of not receiving a sufficiently timely warning of any change in tiheir financial condition, the fear of unfounded complaints, unwarranted deductions and unreasonable delays in payment, the impossibility of obtaining justice in commercial litigation in certain undeveloped countries, and the high costs of such litigation in other countries, and, finally, the consideration that a manufacturer who has invested his capital in his plant and pjatejits depends naturally upon a reasonable speedy return on his investment and cannot undertake to finance a large number of importers in foreign countries — all these are weighty arguments for prudence." — Archibald J. Wolfe, "Foreign Credits," publication as Special Agents Series of tihe Bureau of Foreign and Domestic Commerce, 1913.

PRINCIPLES OF EXPORT TRADE 5

few of the new conditions .that will arise in the development of the merchant's export business.

Success in Exporting Is Measured by Seriousness

The seriousness with which the merchant is disposed to enter the foreign field, and his willingness to take such risks as he has been unfamiliar with at home should be carefully tested before a decision to go in for exporting is made. If the merchant's seriousness is measured by a desire to "dump" a surplus lot of worthless merchandise on an unsuspecting foreign public without considering the future consequences, then he had better devote his efforts to the home market, where such practices will find encouragement in certain sections only. While such "dumping" tactics may prove successful the first time in a foreign country, disaster will surely follow a second attempt. This does not mean, of course, that there are no markets for cheap goods in foreign countries. There are several of them. Reference is here made to articles of a high competitive character where quality and utility are the prime factors that determine their success. The workmanship of these should not be sacrificed in order to make the price extremely attractive to the foreign purchaser. The world should not be a dumping ground for worthless stocks. What is not good for the American people should not be good for the foreign buyers. To be successful the American manufacturer or merchant must lay down his foundation securely. Surely he cannot attain this object by using flimsy material in the effort. Competition in foreign markets is keen. The efficiency of the American workman is matched against the efficiency of the world's greatest artisans. The American workman has proven his efficiency. He has proven his ability to make articles of a quality that has created a world demand. In order to maintain this demand we must continue to produce with the same skill that has marked our successes in the past.

Chapter II

Study of market conditions an essential requirement — Some factors governing export trade — Manufacturer's aim should be to please the customer — quality, not prices, de- TERMINES success — Other factors that govern export trade

Before deciding to engage in export trade the manufacturer must settle in his own mind a number of matters that may affect a final decision. He must decide, first of all, whether he really desires to do exporting on a permanent basis. "Shall I stay in permanently or shall I stay out permanently?" is a question he must be able to answer before taking the first step forward. The cumulative value of exporting is the element that must survive the acid test. Isolated effort is worse than none at all. Unless a manufacturer is in a position to continue exporting on a permanent basis he had better confine himself to the domestic market, as spasmodic attempts to awaken interest in foreign fields are not only painfully expensive but wastefully troublesome in the conduct of business at home.

What Deciding to Go in for Export Trade Means

When the manufacturer decides to sell his goods abroad it is taken for granted that he has a sufficient amount of capital to lay aside for preliminary development, although it is not necessary to use a large fund for such purposes. As- the monetary requirements of each individual manufacturer depend on his own peculiar organization, and the scope of his activities in foreign fields, it is absolutely impossible to name an arbitrary figure as representing the initial capital outlay that would be required. The amount of capital for foreign trade development depends, just as it does at home, on the extent of the activities contemplated, and the condition of the investor's surplus. No sane business man will recklessly devote a large amount of his accessible capital in testing new markets. A well defined idea of the capabilities and requirements of those markets is the first essential of the practical business man. Therefore, in deciding to go in for export trade the manufacturer — it is taken for granted — has made a preliminary survey of the entire situation. First of all he has carefully analyzed his own situation. He has learned that he can increase his factory output by efficient management without extravagantly increasing his overhead expenses. He has learned that his product can be sold in other countries where the degree of civilization is advanced. He has carefully looked over the field for competent men to take charge of his exporting, and is satisfied that he can find fairly competent employes to entrust with such a delicate undertaking as export trade. He has made a close study of laws, regulations, rates, customs requirements, consular documents and hundreds of other details peculiar to the exporting business. Deciding to do exporting means the mastering of all these details, along with many others which will be taken up in subsequent chapters.