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| Sunday, 28 March 2004 |
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| News Business Features Editorial
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Developing an export strategy by Hemal Dias The most common methods of exporting are indirect selling and direct selling. In indirect selling, an export intermediary such as an export management company (EMC) or an export trading company (ETC) normally assumes responsibility for finding overseas buyers, shipping products, and getting paid. In direct selling, the local producer deals directly with a foreign buyer. The paramount consideration in determining whether to market indirectly or directly is the level of resources a company is willing to devote to its international marketing effort. Other factors to consider when deciding whether to market indirectly or directly include: * The size of your firm; Management objectives * What are the company's reasons for pursuing export markets? Are they solid objectives (e.g., increasing sales volume or developing a broader, more stable customer base) * How committed is top management to an export effort? Is exporting viewed as a quick fix for a slump in domestic sales? Will the company neglect its export customers if domestic sales pick up? * What are management's expectations for the export effort? How quickly does management expect export operations to become self-sustaining? What level of return on investment is expected from the export program? Experience * With what countries has business already been conducted, or from what countries have inquiries already been received? * Which product lines are mentioned most often? * Are any domestic customers buying the product for sale or shipment overseas? If so, to what countries? * Is the trend of sales and inquiries up or down? * Who are the main domestic and foreign competitors? * What general and specific lessons have been learnt from past export attempts or experiences? If we are to read one good lesson from a leading multi national company in India, an inexperienced business decision by the executives of the company made the performance of the company suffer. After being in India for close to eight years, 2002 was turning out to be one of the best years for the $8.3-billion Kellogg Company. Figures were looking up and a successful new product launch in the snacks category was getting good initial reports. In fact, two senior executives of the company closely associated with the apparent success were rewarded towards the end of the year. And then, within a few months, both executives surprisingly left the company. Apparently, another senior executive in the company along with some colleagues reported to headquarters that both executives had overstated figures. Neither of two executives had financially benefited - insiders say that they are believed to have dumped stocks and given extra credit to distributors in violation of the company's norms to show enhanced performance. This is one of the bitter incidents faced by a multinational in a lucrative export market and the blame should go to the executives who had purposely or due to lack of knowledge, understanding, steered the whole business into a mere disaster. Management and personnel * What in-house international expertise does the firm have (international sales experience, language capabilities, etc.)? * Who will be responsible for the export department's organization and staff? * How much senior management time (a) should be allocated and (b) could be allocated? * What organizational structure is required to ensure that export sales are adequately serviced? * Who will follow through after the planning is done? Production capacity * How is the present capacity being used? * Will filling export orders hurt domestic sales? * What will be the cost of additional production? * Are there fluctuations in the annual work load? When? Why? * What minimum order quantity is required? * What would be required to design and package products specifically for export? Financial capacity * What amount of capital can be committed to export production and marketing? * What level of export department operating costs can be supported? * How are the initial expenses of export efforts to be allocated? * What other new development plans are in the works that may compete with export plans? * By what date must an export effort pay for itself? Approaches to exporting The way your company chooses to export its products can have a significant effect on its export plan and specific marketing strategies. The basic distinction among approaches to exporting relates to the company's level of involvement in the export process. There are at least four approaches, which may be used alone or in combination: 1. Passively filling orders from domestic buyers who then export the product. These sales are indistinguishable from other domestic sales as far as the original seller is concerned. Someone else has decided that the product in question meets foreign demand. That party takes all the risk and handles all of the exporting details, in some cases without even the awareness of the original seller. (Many companies take a stronger interest in exporting when they discover that their product is already being sold overseas.) 2. Seeking out domestic buyers who represent foreign end users or customers. Many U.S. and foreign corporations, general contractors, foreign trading companies, foreign government agencies, foreign distributors and retailers, and others in the United States purchase for export. These buyers are a large market for a wide variety of goods and services. In this case a company may know its product is being exported, but it is still the buyer who assumes the risk and handles the details of exporting. 3. Exporting indirectly through intermediaries. With this approach, a company engages the services of an intermediary firm capable of finding foreign markets and buyers for its products. EMCs, ETCs, international trade consultants, and other intermediaries can give the exporter access to well-established expertise and trade contacts. Yet, the exporter can still retain considerable control over the process and can realize some of the other benefits of exporting, such as learning more about foreign competitors, new technologies, and other market opportunities. 4. Exporting directly. This approach is the most ambitious and difficult, since the exporter personally handles every aspect of the exporting process from market research and planning to foreign distribution and collections. Consequently, a significant commitment of management time and attention is required to achieve good results. However, this approach may also be the best way to achieve maximum profits and long-term growth. With appropriate help and guidance from the Department of Commerce, state trade offices, freight forwarders, international banks, and other service groups, even small or medium-sized firms can export directly if they are able to commit enough staff time to the effort. For those who cannot make that commitment, the services of an EMC, ETC, trade consultant, or other qualified intermediary are indispensable. Distribution considerations * Which channels of distribution should the firm use to market its products abroad? * Where should the firm produce its products and how should it distribute them in the foreign market? * What types of representatives, brokers, wholesalers, dealers, distributors, or end-use customers, and so forth should the firm use? * What are the characteristics and capabilities of the available intermediaries? * Should the assistance of an EMC or ETC be obtained? Indirect exporting The principal advantage of indirect marketing for a smaller local company is that it provides a way to penetrate foreign markets without the complexities and risks of direct exporting. Several kinds of intermediary firms provide a range of export services. Each type of firm offers distinct advantages for your company. Confirming houses Confirming houses or buying agents are finders for foreign firms that want to purchase your products. They seek to obtain the desired items at the lowest possible price and are paid a commission by their foreign clients. In some cases, they may be foreign government agencies or quasi-governmental firms empowered to locate and purchase desired goods. An example is foreign government purchasing missions. Export management companies An EMC acts as the export department for one or several producers of goods or services. It solicits and transacts business in the names of the producers it represents or in its own name for a commission, salary, or retainer plus commission. Some EMCs provide immediate payment for the producer's products by either arranging financing or directly purchasing products for resale. Typically, only larger EMCs can afford to purchase or finance exports. EMCs usually specialize either by product or by foreign market, or sometimes even both. Because of their specialization, the best EMCs know their products and the markets they serve very well and usually have well-established networks of foreign distributors already in place. This immediate access to foreign markets is one of the principal reasons for using an EMC, since establishing a productive relationship with a foreign representative may be a costly and lengthy process. One disadvantage of using an EMC is that a manufacturer may lose control over foreign sales. Most manufacturers are properly concerned that their product and company image be well maintained in foreign markets. An important way for a company to retain sufficient control in such an arrangement is to carefully select an EMC that can meet the company's needs and maintain close communication with it. For example, a company may ask for regular reports on efforts to market its products and may require approval of certain types of efforts, such as advertising programs or service arrangements. If a company wants to maintain this type of relationship with an EMC, it should negotiate points of concern before entering an agreement, since not all EMCs are willing to comply with the company's concerns. To be continued next week **** Hemal Dias is General Manager, International Marketing, currently attached to a BOI project of Coco Lands Ltd. This information is based on wide experiences, exposures and negotiations in International Markets such as USA, Canada, Australia and EU member countries. |
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