News & Expert Interviews
Tuesday, December 4, 2007
A Beginner's Guide to Exporting Products
1) Do I need to establish a local market before I pursue exporting to International markets?
Typically companies will have a local market secured prior to exploring international opportunities. This provides them with a lower cost method of testing their product and will ensure a steady stream of revenue to help finance international expansion. As well, foreign buyers are weary of untested products. However, sometimes a foreign market is larger or more lucrative and companies decide that it is more advantageous to focus efforts there, rather than in their limited home markets. It often depends on the product the company is producing. For example, Canadian traders of grains like lentils and chickpeas do not spend much time selling in the Canadian market because of its relatively small size and because those products are not typically consumed in large quantities by Canadians. Instead, countries like India are larger, more lucrative markets.
2) Should I plan to complete negotiations to export to one country before entering into negotiations elsewhere?
Not necessarily. This was the conventional wisdom years ago but now the pace of business is moving so quickly that if a company isn't first to market, it many never make significant inroads, or at the least it will be much more difficult to penetrate the market. The companies that I meet are in fact far too timid. They need to be more aggressive in their expansion and should consider that negotiations can move along very slowly in some countries and may take years to complete. Instead, companies should identify their top markets and potential partners in those markets and start negotiating as soon as they have the production capability.
Exporters should avoid granting concessions for a number of foreign countries to one partner. They may think they are saving time by negotiating and working with one partner who will cover, for example, all of Latin America. Rarely are these deals favorable to the exporter. You need someone who is very knowledgeable of the local market, someone who has a strong presence in each of those markets. If an overseas party approaches you about covering more than one country, they should be willing to start with one market and if they meet pre-established targets, then they could expand their territory.
I would also like to stress that exporters should explore their options with several potential overseas partners before signing an agreement. The most common mistake I see is companies striking a deal with the first person to approach them. Very often these people do not represent large companies, have little expertise in the market and cannot deliver. They are not necessarily fraudulent but very often incompetent, wasting your time and preventing your product from getting to customers.
3) At what stage do I need to bring a consultant such as yourself on board to help?
As soon as the company feels it has the capacity to look for new markets. An outside consultant can objectively measure whether or not the company has an exportable product and the appropriate management commitment. As well, experts who are continually scanning the globe know where the hottest opportunities lie. A lot of media attention has been focused on China in recent years but I would almost never recommend exporting to that country, particularly for first-time exporters. It is too vast, too complex and too risky for all but the most sophisticated firms.
Retaining an international trade consultant mitigates the risks for new exporters by walking them through all of the steps involved in trade, from market research to insurance options.
4) Will I need to establish International manufacturing for my product or is it better to continue production at home and export the finished items?
Again, it really depends on the nature of the product. For products that are very bulky, shipping costs must be taken into consideration. In this case a licensing or manufacturing agreement may be desirable. The key to manufacturing abroad is to protect your proprietary rights, and that can be almost impossible in countries with weak legislation or enforcement. It can also be difficult to find another manufacturer that can meet your exact design specifications, even with products that don't seem complicated, like clothing. However, many firms are successfully off shoring their production to low-cost jurisdictions so it can be done with careful planning and consideration of all of the monetary and non-monetary costs involved.
5) Should I only work with one distribution network per country? Or use multiple avenues for distribution?
Some distributors or agents will demand exclusivity in a country. In general, the more specialized the product, the fewer market entry channels you will require and if you find the right distributor or agent it is wise to grant them exclusivity. By establishing sales targets in the distribution or agency agreement you can somewhat protect yourself from the worst-case scenario of having an exclusive agreement with an ineffective partner. However, in some countries this type of clause is not permitted or enforceable so an independent legal opinion should always be sought.
6) What are the most important considerations a small to medium-sized business should be aware of prior to exporting product?
In general, proper planning and follow-up is the key to global success. Internally, a business needs to have solid domestic operations, policies and procedures before going global. If they don't, those inadequacies will only be magnified by international operations. Next, a company must do its homework, either in-house or by hiring an outside consultant. This applies to the country or region the company is targeting, the industry and potential partners. Too often companies get overwhelmed or excited to get started and forget to undertake their basic due diligence.
But getting the deal is only the beginning. Companies must remember that successful overseas business partnerships are built on relationships. Negotiating takes time but so does maintaining the relationship once it has been cemented by a legal agreement. Too often exporters do not nurture those relationships to encourage deeper ties and therefore stronger sales. Just as most firms have regular meetings with their sales staff, they need regular communication with overseas partners. With differences in time zones and often language barriers, this can be difficult but it is necessary. Foreign distributors or agents represent several firms and naturally they will spend more time and effort on those who they enjoy working with.
Most importantly though, I encourage clients to have fun and embrace the experience. It can be grueling but I have found that I am able to gain insight into a completely different aspect to local cultures when I travel on business - insights I would never gain sitting on a beach or participating in an organized tour. Very often I am invited into the homes of my business associates and treated to glimpses of everyday life, which is very rewarding for me.
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Unusual Exports: Is Your Product Appropriate For Export?
How to Globalize Your Export Website
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