In the previous article, we looked at tools that were available online from US Census sources and through Missouri SBDC counselors to identify potential markets at the country level. This resulted in a prioritized list of countries to consider for export based on factors such as U.S. import share, language differences, GDP trends, distance, costs to import, and contract enforcement expenses. While we did not explore the variety of commercial platforms that are available, the Euromonitor International tool used by our counselors was noted. It is important to remember that these tools can also provide valuable insights specific to your product, potential customers, and competition. In this article, we will explore market entry strategies, the second of eight key components in the typical export plan. In future issues, we will consider other plan aspects, such as costs to export and pricing strategy.
Exporting falls within the broad umbrella of market entry strategies that include a range of approaches to build international markets for your business. Partnering, licensing, franchising, joint venture creation, business acquisition, and Greenfield ventures represent the spectrum of market entry opportunities. Of these, exporting is viewed as relatively low risk and the most traditional of the various market entry approaches. The goal of the exporting approach you decide to use should maximize your chance of success as you move into the new market you have selected. You will want to set clear goals for the specific product you will export, sales, customer base within the country you have identified for export, timeline, and budget. These will all be part of your market entry strategy. You will also want to give attention to your export marketing plan. This plan should include promotions to establish your product in the new market, a comprehensive look at the market and competitors, and any required product and packaging adaptations needed to address local market, language, and cultural issues.
As you develop your market entry strategy and export marketing plans, you will decide whether you want to use direct or indirect exporting. In direct exporting, the product or service of your business is controlled fully by you, the business owner. When a company works directly with an entity in a foreign market, rather than through another domestic company with a presence abroad, they are considered to be involved in direct exporting. The foreign entity may be an agent, representative, distributor, or even a subsidiary of the company. Your product directly enters the new market, potentially through your online presence or appointed distributor or agent, and you are responsible for the export transaction. This approach has a number of advantages. For example, by not involving an intermediary, you can maximize your profits, you control your own marketing and sales strategies, and you are in direct contact with your customers, agents or distributors. This can allow you to better understand their needs and receive customer feedback. However, direct exporting also has disadvantages, particularly for those new to exporting. Among these are the need to train your employees, as well as handle shipping, payment, and complete all export documentation. All of these tasks require additional resources and the approach comes with higher risks due to the greater investment required and the learning curve associated with exporting to a new market.
In contrast with direct exporting, indirect exporting involves the use of an intermediary, who can manage the export process for your business. This can reduce resource requirements, as well as financial and other risks to your business. The intermediary may be a trading company or an export management company.
Trading companies cover all aspects of the export and import operations and procedures. Their primary purpose is to connect sellers (producers) and buyers. They can negotiate the terms of sale and delivery of products, will manage logistics and transportation, perform marketing, solicit orders, and provide invoicing and payment services. Such companies assist the business with all aspects of exporting their product and you can expect them to purchase your product in the US and sell it in the foreign market. Trading companies typically offer a broader range of services than distributors, who are wholesalers that will use their distribution network to get your product into the hands of retailers.
Piggybacking is an additional form of indirect exporting. In this model, your business works with a non-competing company to sell your product in the international market of interest. Rather than develop your own distribution network, your business takes advantage of the existing network and knowledge of the foreign market to distribute and sell your product. As with other indirect exporting models, the piggyback company performs this service for a fee.
The export path you select will, in part, be based on factors such as the level of resources your business is prepared to invest, your current sales model (online, retail or via a distributor), the nature of your product and your understanding of the marketplace. Let’s again return to the example we have used previously and assume your business is a manufacturer of tractor engine gears, Harmonized Code: 8483.90.5000. Since Canada was the top country to consider for export, let’s assume that is the international market your business is going to target. If your current domestic sales model is eCommerce only, you might look to build your web presence on the common search engines through targeted advertising to attract customers and use the same basic B2C model you are using domestically.
In contrast, let’s assume that your business has grown to the point where it generates the majority of its sales through a distributor. You have a pricing strategy that works, can meet the distributor’s demands and you sell not only tractor engine gears but other engine components to the same distributor. This aspect of your business might suggest that you pursue a similar model for export to Canada. Given the language and cultural similarities, some of the same business strategies you developed in building your relationship with your domestic distributor may prove effective in creating such partnerships in Canada.
Your Missouri SBDC counselor can work with you to build an export plan that works for your business. They can also review with you other fee-based approaches that can help your business prepare for export.