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Action Plan for Startup Exporters Establishing an Overseas Importing Business

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Stage 1: Analise Overseas Pricing, Packaging and Specifications

Starting an export-import business? The first thing you need to do is understand how much your product sells for in other countries. This is especially important if you’re planning to export items.

Let's talk about soap, for example. Suppose you want to sell Indian soap in Kenya. Here’s how you can find out the right pricing strategy without breaking the bank.

A. Check Online Prices Firstly, look up the retail prices of soap in Kenya. You can do this from the comfort of your home by using the internet. Visit online shopping sites and search for the kind of soap you want to sell. Use keywords like “ecommerce store in kenya”, “soap price in Kenya” or “buy soap online in Kenya.” This will give you an idea of what people in Kenya are willing to pay for soap with products images of front and back. As online source in African countries are limited you may look to explore B or C options.

B. Visit the Country Another way to understand the market is by visiting Kenya. However, this can be quite expensive. You'll need to pay for travel, stay, and other costs. So, this method is not the best for everyone, especially if you're just starting out.

C. Research from Home and Hire Help A smarter and cost-effective method is to do your research from India and get some help. There’s a lot of information available online that can guide you. For instance, you can watch a series of videos on YouTube that explain how to research and analyze the market for your product in another country. Here’s a link to get you started: YouTube Research Series.

Moreover, you can hire a Virtual Assistant (VA). A VA can help you gather information about your product in the Kenyan market. They can check online prices, find out what customers are saying, and even help you connect with local businesses.

Why Choose Method C? Choosing method C – researching from India and hiring a VA – is both cost-effective and efficient. You save money on travel and still get detailed information about the Kenyan market for your soap. This approach allows you to understand what price your soap should be sold at and how you can compete with other brands effectively. Only thing in this you need to do lot of research and analysis before hiring the VA. VA has strong regional value and command but you are businessman, so you need to give task to VA based on it VA will work for us. So in blog we will learn to explore option C.

VA Hired and task given to do pricing research for us as online sources were limited and we wanted to explore full market place, so we given them task to visit several market place and send products images and videos related to our niche and based on the output given by VA we come to following:

In our first research, our virtual assistants communicated with various shop owners and suppliers. This interaction revealed that while the beauty soap market is competitive, it offered limited differentiation in pricing between India and Kenya. However, these conversations guided our focus towards the second research for laundry soap segment, where diversity in brand loyalty is less stringent. Retailers indicated a willingness to experiment with new products, leading us to conclude that entering the laundry soap market could be more viable.

For detailed insights, review the research documents: First Research & Second Research.

Stage 2: Bird Eye View Profit Analysis

The analysis reveals significant differences in the profit margins between beauty soaps and detergent products when comparing Indian and Kenyan markets:

However, to calculate the cost difference in percentage, we would use the formula:

Percentage Difference = (Overseas Pricing − Price in India/Price in India) × 100%

After thorough analysis and study of various products, we have determined an optimal average price for creating a product set. If we manage to source at this price or bellow that, it could prove profitable for sales in Kenya as per Birds Eye View Profit Analysis:

1. Beauty Soap:
   • Price in India: KES 40.5 (23 INR) *
   • Price in Kenya: KES 75
   • Percentage Difference: Approximately 85.19%
2. Detergent Products:
   • Price in India: KES 50 (29 INR) *
   • Price in Kenya: KES 199
   • Percentage Difference: Approximately 298%

This substantial difference indicates that detergent products have a much higher potential earning margin than beauty soaps when exporting from India to Kenya. It also suggests that introducing new Indian detergent brands could be highly profitable in the Kenyan market, especially since brand loyalty in this segment appears to be low. This opportunity could be advantageous for exporters looking to capitalize on less competitive and high-margin products

Stage 3: Shipment Data Analysis

From shipment data analysis we can come to conclusion that exporting products directly to them is not good option as these products are being shipped at almost same price from India with nominal or very low profit margin from this, we can derive 2 conclusions

1. Products exported with low margin of 1% to 3% profit
2. Products exported without adding margin or in low price, it is sent to own setup / own company or network, with reduced value of invoice to save duties and taxes and target is set by both importer and exporter (same ownership) to make profit from sales in Kenya not from Invoice

Check the pricing details from the port data here: View Port Data Pricing.

If option 1, exporting with a marginal profit of 1 to 3%, appears profitable based on port data, proceed with creating a detailed costing sheet covering FOB, CFR, and CIF. If this approach is not beneficial, pivot towards further research for long-term growth and sustainability. For a comprehensive understanding of export costing as per option 1, kindly watch EXPORT COSTING CALCULATOR tutorial: Watch Video.

Stage 4: Export Costing from India to Africa with monthly storage and warehousing fees to check if it would be profitable

As importer and exporter would be same, lot of costing related to credit insurance or banking cost would be saved as we can work with open payment terms with our own company in overseas.

Let's recalculate based on the new details for the beauty soap, considering both 80g and 150g soap variants and integrating the new packing specifications. We will then combine these to provide a mix for a single 20ft container. We will use the same approach for the unit weight of 1kg or 1.5kg pieces for the detergent products.

Beauty Soap:

1. 80g Soap:
   • Packing: 144 bars per shipper.
   • Container Load: 1360 shippers per 20ft container.
2. 150g Soap:
   • Packing: 72 bars per carton.
   • Container Load: Assume an average of 1550 cartons per 20ft container (midpoint of 1500-1600).

Let's proceed with the detailed calculations for both types of soaps.

First, we'll calculate the total initial export costs common for both types of soaps:

• Total Initial Export Costs:
  • Transport from Factory to Customs Port in India: 40,000 INR
  • Custom Clearing at Indian Port: 20,000 INR
  • Shipping Cost: 80,000 INR
  • Custom Clearance Charges in African Country: 50,000 INR
  • Transport from Port to Warehouse in Africa: 50,000 INR
  • Miscellaneous Charges: 50,000 INR
  • Total: 290,000 INR

Next, we'll calculate the total monthly expenses in Africa:

• Total Monthly Expenses in Africa:
  • Monthly Godown (Warehouse) Rent: 30,000 INR
  • Employee Salary: 50,000 INR
  • Monthly Maintenance: 10,000 INR
  • Stationery: 6,000 INR (average of 5,000 and 7,000 INR)
  • Furniture: 10,000 INR (Lease)
  • Other expenses: 50,000 INR
  • Total: 156,000 INR

Now, let's calculate the costs and revenues for each type of soap:

Beauty Soap:

• Cost of Product: 20 INR per unit
• Total Units: 153,720 bars
• Total Product Cost: 20 INR * 153,720 = 3,074,400 INR
• Total Cost (Initial + Monthly Expenses): 3,074,400 INR + 290,000 INR + 156,000 INR = 3,520,400 INR
• Revenue (if sold in 1 month):
  • Sale Price in Kenya: 75 KES per unit
  • Assuming the current exchange rate is 1 INR = 1.5 KES (this rate will vary, so please update with the current rate for accurate calculations), the sale price per unit in INR would be 75 / 1.5 = 50 INR.
  • Total Revenue: 50 INR * 153,720 = 7,686,000 INR
• Profit: 7,686,000 INR - 3,520,400 INR = 4,165,600 INR

Laundry Soap:

• Cost of Product: 50 INR per unit
• Total Units: 20,833 pack pieces
• Total Product Cost: 50 INR * 20,833 = 1,041,650 INR
• Total Cost (Initial + Monthly Expenses): 1,041,650 INR + 290,000 INR + 156,000 INR = 1,487,650 INR
• Revenue (if sold in 1 month):
  • Sale Price in Kenya: 199 KES per unit
  • Assuming the same exchange rate, the sale price per unit in INR would be 199 / 1.5 = 132.67 INR.
  • Total Revenue: 132.67 INR * 20,833 = 2,765,821.11 INR
• Profit: 2,765,821.11 INR - 1,487,650 INR = 1,278,171.11 INR

Profit Margin Calculation:

By exporting beauty and laundry soaps from India to Africa and selling them within one month, the estimated profit margins would be:

• Beauty Soap: 4,165,600 INR
• Laundry Soap: 1,278,171.11 INR

1. Total Cost Calculation (for each time period):
   • Total Cost = Product Cost (Cost per unit * Total units) + Initial Export Costs + Monthly Expenses * Number of Months
2. Profit Calculation:
   • Profit = Total Revenue - Total Cost
     • Where Total Revenue = Sale Price per Unit * Total Units Sold
3. Profit Margin Calculation:
   • Profit Margin (%) = (Profit / Total Revenue) * 100

Let's break it down for both products and for different time periods:

For Beauty Soap:

1. Total Cost (for 1 month, 3 months, 6 months):
   • 1 Month: Total Cost = (20 INR * 153,720) + 290,000 INR + (1 * 156,000 INR)
   • 3 Months: Total Cost = (20 INR * 153,720) + 290,000 INR + (3 * 156,000 INR)
   • 6 Months: Total Cost = (20 INR * 153,720) + 290,000 INR + (6 * 156,000 INR)
2. Profit (for 1 month, 3 months, 6 months):
   • For each period, calculate: Profit = (75 KES per unit converted to INR * 153,720) - Total Cost for that period
3. Profit Margin (for 1 month, 3 months, 6 months):
   • For each period, calculate: Profit Margin = (Profit / Total Revenue) * 100

For Laundry Soap:

1. Total Cost (for 1 month, 3 months, 6 months):
   • 1 Month: Total Cost = (50 INR * 20,833) + 290,000 INR + (1 * 156,000 INR)
   • 3 Months: Total Cost = (50 INR * 20,833) + 290,000 INR + (3 * 156,000 INR)
   • 6 Months: Total Cost = (50 INR * 20,833) + 290,000 INR + (6 * 156,000 INR)
2. Profit (for 1 month, 3 months, 6 months):
   • For each period, calculate: Profit = (199 KES per unit converted to INR * 20,833) - Total Cost for that period
3. Profit Margin (for 1 month, 3 months, 6 months):
   • For each period, calculate: Profit Margin = (Profit / Total Revenue) * 100

Remember, the total revenue and profit will vary depending on the sales volume and the duration it takes to sell the products. The longer the duration, the higher the expenses due to monthly costs, which in turn reduces the profit margins.

For Beauty Soap, our profit margins are 54.2% if sold in 1 month, but drop to 50.1% in 3 months and 44% in 6 months.

For Laundry Soap, profit margins start at 46.2% (1 Month), then decrease to 34.9% in 3 months and 18% in 6 months.

• The longer the products take to sell, the lower our profits due to ongoing expenses.
• Fill your container with as many high-value items as possible to make more profit.

When low-value items are shipped in the same container, overall expenses remain nearly unchanged, reducing the potential for profit

Stage 5: Overseas Setup Cost with travelling and accommodation expenses

Many people focus on the overseas setup costs without completing the necessary preliminary analyses. Understanding your product's unique selling proposition (USP) and why customers should choose your product is crucial. This foundational insight should guide you through the four stages of analysis before considering overseas setup.

After comprehensive analysis, we clarified our business setup and costs to both the Indian embassy and professionals like CHAs (Custom House Agent - clearing and forwarding agents) - and CAs (Chartered Accountant). This clear communication prevents overloading them with questions, enhancing cooperation. Their feedback improves our strategies for competitive pricing, cost reduction, and efficient shipping, ensuring a smoother market entry and operational process.

• Setup of Company: 1,50,000 - 2,00,000 INR
• 18% GST Charges on Setup: Not applicable (It is always advisable to setup a company via overseas charter accountant and consulting firm to avoid this)
• Visa for Person: 15,000 INR (3 months visa)
• Round Trip Ticket for Person: 1,50,000 INR (India to Africa - Multiple Destination)
• COVID Test of Person: 25,000 INR (upon arrival and exit in African countries)
• Accommodation: 30,000 INR (for 15 days)
• Food (Breakfast, Lunch, Snacks, Dinner): 30,000 INR
• Local Transport: 15,000 - 20,000 INR
• Miscellaneous Expenses: 30,000 INR

The total estimated cost for setting up is listed between 4,00,000 to 5,00,000 INR.

These calculations are based on the estimated costs and the assumed exchange rate. Actual profit margins may vary based on actual expenses (+ marketing expenses), the current exchange rate, and actual sales prices.

In a nutshell, while identifying profitable export products, understand that overseas sales are not just about product price comparison. Comprehensive market and cost analysis, international marketing strategies, and swift stock clearance are vital. Remember, superficial profit analysis can mislead; thorough evaluation prevents potential losses. Barai Overseas Export Import Consultation offers guidance on these aspects, aiding in informed decision-making and sustainable business growth.