Export Tutorial: Part 3 (1/3) Export Strategy

Export Tutorial
Part 3 (1/3) Export Strategy

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Export Tutorial: Part 3 (1/3) Export Strategy

Export Strategy Contents

Developing Export Strategy
Direct Exporting

Manufacturers Representative or Sales Agent

Foreign Distributor / Importer
Overseas Retailers
Central Trade Offices and Trading Companies
Indirect Exporting

Domestic Intermediary
Export Management Company (EMC)
Export Trading Company (ETC)
Advantages of Using EMCs / ETCs
Potential Disadvantages of Using an EMC / ETC
Overseas Intermediary
Licensing
Franchising
Contracting
Other Intermediaries
Piggyback Marketing
Export Merchants
Corporate Presence
Alternative Distribution Approaches

Joint Ventures
Strategic Alliances
Subsidiaries
Finding Trade Leads

Government Agencies & Sources

Unites States Department of Commerce (DOC)
Unites States Department of Agriculture (USDA)
Unites States Agency for International Development (USAID)
Unites States Trade Development Agency (USTDA)

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State and Local Governments
Private Agencies and Sources
Television and Motion Pictures
Electronic Media
Finding an Overseas Representative

Agent or Distributor?
Use and Agent
Use a Distributor
Compile Potential Representative List
Government Assistance Programs
Private Agencies and Sources
Electronic Resources and Other Media
Contacting Potential Representatives
Evaluating Potential Representatives
Background Information on the Representative
Third Party Evaluations
Bank and Trade References
Current Business References
World Traders Data Report and Commercial Credit Reports
Draft and Execute Agreements
Managing and Motivating Distributors

Quality Products and Exclusivity

Quality Products
Exclusivity
Sales, Prices and Profit Potential
Pricing
Effective Communications
Periodic Visits
Updates
Correspondence
Training
After-Sale Service
Collaborative Work Effort
Recognition and Sales Conferences
Recognition
Sales Conferences
Traveling to Overseas Markets

Travel Documents
Medical Preparation

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Cultural Factors
Target Market Distinctions
Cultural Business Variables
Cultural Negotiating
Travel Tips
Promoting the Product

Campaign Control
Centralized Promotional Efforts
Decentralized Promotional Efforts
Means of Advertising
Direct Mail
Media Advertising
Trade Fairs, Trade Missions, and Catalog Exhibitions
Multilateral Development Banks (MDB)
Web Marketing: Search Engine Optimization (SEO), Search Engine Marketing
(SEM), Social Media / Social Networks

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Export Tutorial: Part 3 (1/3) Export Strategy

Developing Export Strategy 1/3

Your company should develop a method of market entry .This section explains foreign market entry
issues such as finding and developing trade leads, exporting directly and indirectly, pursuing international
bid opportunities, managing and motivating distributors, promoting your product and traveling overseas.
Each of the general categories listed below come with their own unique trade-offs between financial risks,
product control and organizational goals.
The indirect methods of market entry usually require less marketing investment, but you could lose
substantial control over the marketing process. Direct exporting may necessitate larger capital investment
in marketing, but your degree of control over export strategies is greater. Corporate presence is an option
for companies with successful test marketing.

Direct Exporting
You can sell directly to customers in foreign markets by opening an export sales department, which
creates an opportunity to establish a closer relationship with the overseas market and buyer. In addition
to selling directly to your targeted market, you may also use an export manager to handle other sales
approaches. In some countries where you cannot sell directly to the end-user, you must use a local agent
or representative. This is true in the Middle East, Central America, and in some Asian countries.
Other direct exporting options include using a variety of export intermediaries.
Manufacturer's Representatives or Sales Agents

Generally, representatives or sales agents refer to a person responsible for closing the sale and
taking orders on a commission basis. They do not take financial responsibility or collect payment
for the sales, and they assume no risk or responsibility for the product. Their primary interest is to
make the sale, whereas it is your responsibility to check credit and arrange payment terms. A
representative will want a contract from you for:

Guaranteeing territory

Exclusivity

Method of compensation

Term of service

Representation of the product line for a definite period of time

In most instances, representatives will be servicing both domestic and import accounts, as well as
selling complimentary lines that do not compete and they utilize the product literature and
samples that you supply.

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There is some controversy over the term agent. Depending on the country, the term carries a
rather broad interpretation of legal responsibilities involving the agent's independent activity to
contract on your behalf without your instruction. Avoid using the term agent. Any contract should
clearly indicate legal authority of the representative to obligate the firm.
Foreign Distributors/Importers

Foreign distributors purchase the product and are always responsible for payment of the goods.
They assume financial risk and generally provide support and customer service They often buy to
fill their own inventories and typically carry a range of non-competitive, but complementary
products. Beware, some distributors have been known to buy products they purposely don't sell
to check competition.
Distributors should maintain adequate facilities and staff for after-sale service. Investigate this
option if your product requires maintenance or spare parts. Payment terms and length of contract
are usually initiated with a short trial period. Territory exclusivity is normally required by
distributors.
Overseas Retailers

Selling directly to a foreign retailer relies mainly on travelling sales representatives. Another
distribution alternative uses overseas buying offices of domestic retailers. These buyers can also
be a practical source of foreign distribution for American manufacturers. Print-based selling
techniques using catalogues, product literature, and brochures can also reach the marketing base
of foreign retailers and they reduce the cost of travelling.
Product sales are usually limited to consumer goods that can be sold at a lower price, reflecting
the absence of a representative's commission. It is recommended that you sell to the retailer at a
price flexible enough to allow you to pay a representative in the future. In general, stores are
more willing to select the service of a representative who places the order for them, and services
their account with follow-up channels of communication.
Central Trade Offices and Trading Companies

Buying offices or central trade offices are often divided into industry groups that buy for the whole
country in some of the few remaining controlled market economies. China is the largest controlled
economy that maintains trade and buying offices, often called Foreign Trade Corporations. They
may buy for the whole country or for regional groups and provinces. Chinese trade organizations
do most of the negotiating and contracting, which reduces the risk of bargaining with lower level
officials who do not have ministry approval.
Native to Japan, general trading companies, called "Sogo Shoshas", set market trends for
Japan's internal and external trade. These companies can be a valuable resource for businesses
who want to participate in the Japanese market. Major trading companies usually have offices in

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the U.S., however, they may have to send a sample to Japan for final approval. Allow time for
product transportation and evaluation.

Indirect Exporting
While direct exporting may be a profitable method of foreign market entry for some businesses, sale by
the exporter through an intermediary may be a better alternative to the complex tasks and risks involved
in direct exporting.

Domestic Intermediary
Export Management Company (EMC)

An Export Management Company (EMC) functions as an "off-site" export sales

department, representing your product along with various non-competitive manufacturers.
EMCs search for business for your company and usually provides the following services:

Perform market research and develop a marketing strategy

Locate new and utilize existing foreign distributors or sales representatives

Function as an overseas distribution channel or wholesaler

Take title to the goods and operate on a commission basis

Note: EMCs may or may not take title to the goods, depending on the arrangement
between the EMC and the manufacturer. In addition, they must balance the product lines
they represent.. Product diversification is essential to protect against radical foreign
market changes and maximize economies of scale.
Export Trading Company (ETC)

Export Trading Companies (ETC) are very similar to.EMCs. The ETC is more likely to
take title to the product and pay you directly, but like an EMC, they can also act as an
export department. Usually, there is less responsibility on the part of the ETC towards the
supplier and they tend to be demand driven and transaction oriented.
There is legislation that promotes the use and formation of an EMC or ETC by providing
the EMC/ETC with immunity from prosecution from antitrust regulations. It permits banks
to invest financially in EMCs/ETCs and reduces restrictions on trade financed by financial
institutions. Officially, an ETC is a legally defined entity under the Export Trading
Company Act , with specific responsibilities and obligations. In contrast to an EMC, an
ETC is very difficult to set up. There are special certifications and requirements, along
with detailed paperwork.

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An example of an ETC is Mitsui; they buy and sell goods on their own behalf for their
clients. Before deciding to use an EMC or ETC, consider the following pros and cons.
Advantages of Using EMCs/ETCs

Faster foreign market entry in terms of first recorded sales.

Better focus on exporting, as most firms give priority to their domestic problems.

Lower out-of-pocket expenses.

Opportunity to study the methods and potential of exporting.

Expertise in dealing with the details of exporting, as well as its strategies.

Potential Disadvantages of Using EMCs/ETCs

Loss of control of the export strategies and quality control of after-sales service.

Competition from the EMCs/ETCs other products.

Reluctance of some foreign buyers to deal with a third party intermediary.

Added costs and higher selling prices because of gross profit margin requirements of the
EMC/ETC, unless the economies of scale can be used to off-set this factor.

Possibility of the EMC/ETC neglecting the client's product in favor of other products that might be
more profitable and easier to sell.

Overseas Intermediary
Licensing

Licensing offers the advantages of rapid foreign market entry and reduced capital
requirements to establish manufacturing facilities overseas.
A license is a contract to identify what part of the licensor's trademarks, patents, designs,
copyrights, and know-how are being licensed.
Important considerations:

Protect trademarks and intellectual property by securing proper patent and trademark registration
before signing a licensing contract.

Make sure agreements are not in violation of the host country's existing trade/product regulations
or restrictions.

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Don't wind up as competitor to your own product by having your own design or know-how
licensed in a foreign marketplace where you are already exporting.
Although the major disadvantage of licensing is the possibility of losing control over
manufacturing and marketing, sometimes you can learn much more from your licensees
by giving attention to original product improvements.
Franchising

According to AZ Franchises.com , the franchise industry accounts for approximately 40% of all
retail sales in the U.S. Despite the recent slowdown, global expansion has occurred in

nearly every world region. Most companies already have successful domestic operations,
with the most popular franchises occurring within the restaurant and retail sectors.
Franchise agreements tend to give the franchiser more control over marketing, since it is
the company's reputation and existing market relationship that adds value to the product.
With almost any overseas arrangement, distribution approaches must incur expenses to
support foreign marketing such as advertising. However, the overall investment by
franchisers is much less than for company-owned sales outlets.
McDonalds and Coca Cola are prime examples of success. Japan, Europe, Australia and
Asia are increasing their franchise development. Canada is also a high-ranking country
for goods sold through franchise outlets, largely due to its location. The United Kingdom
claims over 2500 franchise operations.
Contracting

Agreements with foreign manufacturers to produce your product, as opposed to

exporting, are referred to as contract manufacturing. As an easy foreign market entry
method since your manufacturer is already producing your product for their domestic
market, it can also be the initial instrument used to create a subsidiary company
overseas. Although it is a method of indirect distribution to foreign markets, it does not
address sales and marketing issues of the finished product.
Important considerations:
How much intellectual knowledge should you deliver to the manufacturing firm to make
contracting possible?

Quality control at overseas production facilities.

Lack of control over geographical, cultural or economic conditions.

Third party disclosure of confidential product information.

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In contrast to licensing, contract manufacturing accommodates company management
roles in the foreign operation. However, they will have to interact with entirely new
management, whose first language is probably not English. Regardless of these
disadvantages, the contracting manufacturer will have knowledge of the foreign market
as well as the business and political contacts to facilitate market entry.

Other Intermediaries
Piggyback Marketing

A company that already has an export distribution arrangement established may need to
provide other goods or services to supplement the product. Permitting another company
to market your product or service along with its own is called piggyback exporting. This
type of exporting works well with accessory type products (computer hardware/software)
or follow-up services where a third party adds value to the distribution system by offering
a more complete solution to the foreign market.
Export Merchants

These remarketers purchase and then re-package products (usually under their own
label) to establish exclusive markets and customers. The main disadvantage of using
export merchants is that you could lose control over product pricing and marketing in
overseas markets. The territories the remarketer's products reach out should be tracked
to avoid interference with current export activities.
Corporate Presence

Entering a foreign market by establishing an overseas presence requires careful planning

and legal guidance. Corporate presence decisions that involve the establishment of a
foreign subsidiary as the primary method of selling overseas are on the rise for both small
and large companies. However there are alternative approaches to foreign distribution.

Alternative Distribution Approaches

Joint Ventures

Joint ventures bring together two companies from different countries with similar goals to
establish a market entry and a distribution network. Each partner brings specialized skills
that make significant contributions to manufacturing and distribution capabilities.
Unique features of joint ventures:

Joint ventures can be equity or non-equity partnerships.

In some countries, a joint venture is the only way a company can set up operations.

Host country laws often require a native citizen to have a percentage of ownership.

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Both partners make substantial investments into the venture.

Unlike licensing, joint ventures require a direct investment for management, technology
transfer, training, and foreign relations. However, in a joint venture agreement, your
company is in a position to expand resources, export experience and market knowledge
while spreading the risk and laying a distribution framework. There are also several forms
of tax advantages or waivers offered by foreign countries for joint ventures.
Strategic Alliances

Strategic Alliances is a broad term used to refer to alternative alliances, other than joint
ventures or subsidiaries. An alliance is a form of presence overseas that represents more
than a simple buy/sell agreement. It has a well structured purpose, shared management
strategies and financial goal. Companies that form strategic alliances do not necessarily
create an independent business organization. For example, a strategic alliance may take
the shape of any one, or combination of the following agreements:

Intellectual/Technology sharing

Cross-licensing

Distribution arrangements

Equity

Product development coordination

Many small businesses view strategic alliances as an alternative to capital intensive
investment approaches to foreign market entry.
Subsidiaries

In contrast to joint ventures, subsidiaries guarantee control over all decisions involving
marketing and production. Their technologies, patents, trademarks, and know-how have
the maximum protection available under the host country's laws.
Subsidiaries are treated the same as host company operations in terms of benefits,
regulations and taxes. There are favored places in the world to consider for jointly or
wholly owned subsidiaries and manufacturing facilities. Factors to consider range from
low labor costs and government regulation to tax and economic incentives.
Expert legal advice is recommended to determine true advantages of the subsidiary
agreement within the laws and customs of the host country.

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Finding Trade Leads
After deciding your export methods, you need to develop leads to opportunities with end users,
distributors, and potential joint venture partners and representatives. If the buyer or end user is readily
identified, this is simple. However, sometimes it is necessary to identify leads for the required buyers,
distributors, representatives, or joint ventures. These are often available from a variety of government,
public and private databases, programs, and electronic resources, such as Promotion Service Centers,
and the Trade Information Center of the Department of Commerce (DOC) at 1-800-USA-TRADE.
Government agencies and sources are available from federal, state and local agencies. Private agencies
and sources include chambers of commerce, business associations, trade shows, and traditional media
sources. Electronic sources, including the Internet, represent the newest, fastest growing, and potentially
most promising mechanism.
Government Agencies and Sources

The primary avenue for leads in the government sector is from agencies of the Federal
government such as the Department of Commerce (DOC). The DOC coordinates services,
publications and trade shows. Additional sources are available through state and local
governments, although not as extensive. Many of these services are available at little or minimal
charge. For California exporters, Trade Promotion Service Centers can provide counseling and
resources to help you find trade leads and distributors. Most of the government sector activity is
confined to the federal level, particularly the DOC. Also, other agencies may be more appropriate
resources for your product and should not be neglected.
United States Department of Commerce (DOC)

The Department of Commerce (DOC) identifies and qualifies leads for potential buyers,
distributors, joint venture partners and licensees from both public and private sources. In
addition to its own product, country, and program experts, the DOC utilizes an
established network of commercial officers located in countries that represent 95% of the
market for U.S. products.
Up-to-date lists and specific dates are available from the nearest Commerce district
office. You can also contact the Export Promotion Service, U. S. Department of
Commerce office at14th Street and Constitution Ave., N.W., Washington D.C.; telephone
(202) 482-2505 or 1-800-USA Trade.
United States Department of Agriculture (USDA)

The Foreign Agricultural Service (FAS) of the Department of Agriculture (USDA) is

responsible for collecting, analyzing, and disseminating information about global supply
and demand, trade trends, and market opportunities. FAS seeks improved market access
for U.S. products; administers export financing and market development programs;
provides export services; carries out food aid and market-related technical assistance
programs; and provides linkages to world resources and international organizations.

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FAS utilizes an organization of embassy officers and attaches, trade officers, analysts
and marketing specialists to provide a wide range of services. The U.S. Exporter
Assistance - Partners and Trade Leads program is very useful to grow a business.Visit
their web site for more information about their services.
United States Agency for International Development (USAID)

The Agency for International Development (USAID) is responsible for the majority of the
U. S. Foreign economic assistance programs. As such, it offers a conduit for the export of
U.S. services and goods. Opportunities are available for the export of commodities,
expertise, and equipment. Additionally, the use of USAID funds overseas opens avenues
for the purchase of U.S. goods and services.
United StatesTrade Development Agency (USTDA)

The Trade Development Agency (USTDA) is an independent government agency that

funds feasibility studies, analyses, and training programs in emerging overseas markets
and Eastern Europe. Its contracts have to be assigned to U.S. companies. TDA activity is
primarily oriented to determining the viability of markets available for U.S. exports. This
provides opportunities for analysts, consultants, and managers. Additionally, those
involved in the program obtain a "leg up" on competition through the development of
market expertise and contacts.
State and Local Governments

Many state and local governments will provide assistance to potential exporters although this will
vary by locality and product. There is often a specific alliance between certain state and local
governments and specific overseas counterparts such as "sister cities." Services often include:

Trade Leads: usually available from agencies of state and local governments. For more
information contact TradePort.

Mission Planning Assistance and Introductions: frequently available at the state level in
conjunction with trade shows arranged to showcase a variety of goods and services native to that
state.

Promotional Assistance: many state and even local governments realize the benefits to their
economies by promoting exports. Some of them fund printed and electronic materials, host trade
shows and support trade missions.

Existing Contacts: as with other government agencies, a database of previous contacts and
interested parties are maintained by state and local government agencies from their prior
activities.

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Most of the government sector activity is confined to the federal level, particularly the DOC. Other
agencies may be more appropriate resources for your product and should not be neglected.
Private Agencies and Sources

Existing business relationships and associations provide another avenue to making export
connections and obtaining leads. These include:

Banks and other financial Institutions: most larger banks and financial institutions are now
multi-national, have correspondent relationships with overseas counterparts, or maintain a
department to handle foreign financial transactions. These can frequently provide leads and
introductions to overseas markets.

Business Colleagues, with existing relationships and firsthand experience may give personal
recommendation or introductions to prospective representatives, buyers, or distributors.

Trade and Industry Associations are an excellent opportunity to share information and contacts
with those having similar interests.

Trade Shows and Missions to not only share information with other exporters, but provide the
opportunity for direct contact with interested buyers, representatives, distributors.

Export Seminars: oriented towards exporting offer yet another opportunity to meet like-minded
and experienced producers as well as develop additional expertise.

Chambers of Commerce are normally involved in trade shows and missions. and they maintain
a database of contacts for those interested in U.S. exports. Frequently, they maintain "sister"
relationships with overseas chambers in se they place ads in trade journals.

Trade Directories: Publications such as Trade Directories of the World by Croner Publications
provide lists of trade associations and facilitate contacting established entities interested in
exports/imports.

Brochures and Catalogs: exhibiting your company and/or products not only provide information
but can also promote through a variety of other sources such as trade shows, catalog shows, and
direct mail or contact with buyers, distributor, or representatives.

Telephone Books: can often be obtained through an embassy or banking contact if a specific
target market has been selected.

Posters and Billboards: in many countries, particularly Latin America, posters, billboards, and
ads on buses, taxis, and sports arenas serve well to advertise the benefits and availability of your
product.

Foreign Trade Association Newsletters: the correspondence available from overseas can also
provide leads regarding perceived needs and requirements in those markets.

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Miscellaneous Contacts: sometimes contacts can be made through unexpected sources such
as freight carriers, shipping agents, airlines, commodities brokers, port authorities, and others can
be a valuable source of information, contacts, and leads.
Television and Motion Pictures

Television and motion pictures can serve to elicit interest in several ways:

Direct advertising reaches a broad market quickly.

The display of your product in a successful motion picture or television production can provide not
only exposure, but also demand.

Current methods of telecommunication permit the interactive review of products and their features
with potential leads.
Electronic Media

Electronic formats have the potential to accommodate all and replace many of the existing ways
to locate leads. Electronic access to all previously listed government and private services, events,
publications, and foreign associations is available.

Finding An Overseas Representative

Once you've determined that you want to export directly, instead of indirectly, you must decide if you want
to sell through an agent (often called appointee) or a distributor (also called dealers, jobbers, wholesalers,
and sometimes even retailers). There is a substantial difference between the two categories both legally
and functionally. It is often difficult and expensive to unwind from established relationships, therefore it is
important to carefully determine the correct connection for your exporting efforts. Once this is made, you
need to locate, select, screen, and reach an operating agreement with your contact.

Decide if you need an agent or distributor.

Compile a list of possible representatives for each market.

Contact potential representatives describing your intentions.

Evaluate each potential representative's reputation, capabilities, and financial status.

Draft and execute agreement.

A thorough analysis of your needs and requirements, as well as a comprehensive search, evaluation, and
selection are critical to the success of your marketing effort.
Agent or Distributor?

The decision whether to use a distributor or an agent is a substantial one and vital to the nature of
your overseas efforts. The success or failure of your export effort will depend upon this decision.

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Consultation with your legal counsel, the practicalities of your export requirements, and the
traditions of the country you are exporting to will have substantial bearing on your decision.
Representation of any kind in a foreign country is much like a marriage, it can be easy to get into
but often difficult and expensive to terminate. If you are not confident in your selection of a
representative, sell directly to retailers or other end users until the right one is located.
Use an Agent if:

It is the accepted distribution method in the country you are exporting to.

You do not need to maintain inventory in the foreign country. For example, if you
manufacture custom or capital equipment, sell services, or can have inventory shipped direct for
individual orders, you probably do not need to keep stock and maintain a distributorship program
in the foreign country.

You want to maintain direct control of the sales of your products overseas. Since agents
sell the product on behalf of the exporter, they must sell it at the exporter's price, under specified
conditions, and with prescribed representations.

You intend to benefit from corporate identity and intend to conduct business under your own
name.
Use a Distributor if:

It is the accepted distribution method in the country to which you are exporting.

You need to maintain inventory on the foreign country and do not want to maintain your own
distribution network.
Compile Potential Representative List

Once you've determined that you will use a representative, you must locate possible candidates
to act on your behalf. These are available either through government sponsored or private sector
programs, databases, business contacts, and a host of other methods. One of the best sources
that can minimize your search efforts is the DOC Agent/Distributor service. If your product has
51% or more U.S. made content, the DOC will send your product literature to the specified foreign
country, conduct a search, and prepare a report identifying up to six foreign prospects who have
examined your literature and expressed interest.

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