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Exporting Basics

CHAPTER 2. Developing Overseas Markets
  Determine Market Entry Strategies
Each target market needs its own market entry strategy. Foreign markets can differ in many ways -- in income levels, standards, climates, sizes of people and space, language, religion, cultural preferences and taboos, business practices, etc. These differences often dictate whether your products could freely access the market, could be afforded, could tolerate the local physical environment, would "fit" or operate efficiently, or would appeal to or offend potential buyers. Without a market-conducive entry strategy, you will not maximize your market potential; or worse, you could make costly mistakes. The biggest mistake is to assume that all markets can be approached in the same way, or the way you operate domestically.

In its simplest form, market entry plan should address 4 key points:

  • Distribution
  • Promotion
  • Pricing
  • Localization
  Distribution Strategy

The main options are to:

  • Sell directly to end users in the market
  • Sell through agents or distributors in the market
  • Hire overseas sales staff to cover the market
  • Establish overseas sales offices in the market
  • Establish overseas joint ventures or subsidiaries

The right approach largely depends on how much control you want over the process, the expected volume of sales, the openness of the market, and what is customary in each market. Most exporting is done through local agents or distributors, or directly. Overseas sales offices, joint ventures and subsidiaries are typically deferred or last-resort options. They require higher volume to justify the cost. Joint ventures and subsidiaries may also become necessary if imports are subject to prohibitive import duties or other restrictions.

  • Selling through overseas agents and distributors Exporting through local agents or distributors is the norm in most markets and also the most effective. As market "insiders," they speak the language, understand how business is done, and know who the customers are and how to reach them. The end-users generally prefer to deal with local agents and distributors, rather than buy direct from foreign suppliers. Overseas agents typically act as your representative in the market. They develop and send sales orders, arrange payment in dollars, prepare all required import documents, and clear the goods through customs. They normally work on a commission basis and don't take title to the goods. Overseas distributors, in addition to representation functions, generally purchase the goods and resell them at a markup. Many are equipped to stock, install and service the goods. In large, developed markets, agents and distributors often specialize by industry. In smaller, less developed markets, they're more likely to carry many different lines.
  • Selling direct to foreign end users. Direct selling avoids intermediary costs and offers more control over price, service and level of effort. It is a viable option in markets with only a few potential buyers, or when you or the end users can easily find each other. Direct selling is particularly used for mail order sales and now increasingly for Web-based Business-to-Consumer (B2C) and Business-to-Business (B2B) trade. An intermediary is not needed in these situations. However, direct sales are less effective where seller and buyer are not easily matched. Without a local representative, you must find the prospects and handle the transactions. This is not cost-effective in most cases. The lost opportunities and high costs of reaching a large buyer universe usually outweigh any direct marketing benefits.

For guidance on which approach is best in any given market, see Country Commercial Guides (CCGs) and Industry Subsector Analyses (ISAs). CCGs are country-specific reports prepared annually by U.S. commercial officers in all major countries. Distribution options are discussed in the chapter "Marketing U.S. Products and Services in (country)". ISAs also discuss distribution channels, including what's customary and recommended for specific products.

Promotion Strategy

You will need some promotion in target markets to make your presence known. The promotion plan should spell out the techniques to be used in each market; how much to spend; and who will do it – you or your overseas representatives. The options abroad are generally the same as domestically – a Company Webpage, direct mail (regular or e-mail), telemarketing, press releases, paid ads, trade shows, and sales trips. Most countries have adequate media and can support any of these methods. However, some techniques may work better than others in particular markets. Costs could also affect the approach. Certain promotions clearly cost more if done from afar, such as direct regular mail, telemarketing, and business travel. If you opt for these techniques, let the overseas rep handle them, possibly on a cost-sharing basis. Techniques that work best in a given market are covered in Country Commercial Guides (see chapter, "Marketing U.S.Products and Services in [Country]"

Pricing Strategy

Ideally, the export price should cover all costs, meet the competition, attract buyers, and still make a profit. That's a tall order, complicated by the fact that the "optimum" price in one market may not work in other markets. Whatever the market, price planning must start with the product’s baseline unit costs. Pricing below cost is not only economically unwise, but could also trigger anti-dumping penalties.

  • Calculating baseline export costs. Baseline export costs include fixed costs to produce the product for export, plus variable costs to market and deliver the product abroad. Fixed production costs for export could be higher or lower than costs for the domestic market. They might be lower for a stripped down or no-frills model; higher if a product redesign is needed to accommodate different sizes and technical standards.

Variable export costs might include any or all of the following:

    • Market Research
    • Postage
    • Overseasphone/fax calls
    • Promotion
    • Travel
    • Credit Checks
    • Translations
    • Consultant/legal fees
    • Performance bonds
    • Export documentation
    • Any special packaging, labeling, freight forwarding fees
    • Transportation to destination
    • Cargo insurance
    • Agent/distributor commissions
    • Training
    • Warehousing
    • Product warranties
    • Service contracts
    • Banking fees
    • Credit insurance or credit carrying costs.

  • Determining what the market will bear. Once you determine your baseline costs, your price above that can be whatever the market will bear. That's usually a function of market demand, ability to pay, the competition, and your product's particular attributes (new or unique, superior quality, brand recognition). Price flexibility is important, since it's unlikely you'll dominate in any given market. You might consider volume discounts or low introductory pricing to gain a foothold in the market. You might also offer delayed payments or credits to offset price resistance. These concessions, of course, will lower your profit margins, at least in the short run.

Industry Subsector Analyses give a feel for market demand, ability to pay, the extent of competition, and whether price and credit are key competitive factors in the market. Getting actual comparative prices takes more digging. You could ask a prospective overseas rep to check market prices, or pay for a customized market survey, such as the U.S. Department of Commerce’s Flexible Market Research Program(U.S. exporters only).

Localization Strategy

Most countries have different languages, cultural values, tastes, business practices, income levels, environmental conditions, product standards, legal requirements, etc. These all have important sales implications. To be relevant in "different" markets, you’ll need to "localize" your approach. In particular, you may need to localize the product, packaging or sales material.

For example, "as is" sales won't do well if:

  • The product is incompatible with local health, electrical and technical standards.
  • The product is unaffordable for buyers able to use no frills or older generation models.
  • The product needs added protections against abnormal climates, pestilence, pollutants, etc.
  • The product requires downsizing to fit smaller people, homes, streets, etc.
  • The product or packaging uses colors, shapes, words or symbols that offend or appear foolish to target customers.
  • The sales literature and user manuals need translation to be understood.

To know when to adapt, do some research on the cultural, economic, environmental or legal situations in each country. Internet search engines, such as Yahoo or Google, link to many sources of information on international business cultures and customs. Army Area Handbooks cover these matters in great detail. For example, relevant chapters on Japan discuss "The Society and its Environment," "Values and Beliefs," "Social Organization," "Physical Setting," and "The Character and Structure of the Economy" (Japan Army Area Handbook). Other sources include Industry Subsector Analyses and Country Commercial Guides (see standard chapters on "Business Travel -- Business Customs" and "Trade Regulations & Standards". The CITD Trade Information Database includes a number of other web-based sources of intercultural research.


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