Basics of Exporting - Introduction

International trade may appear to be a complex undertaking requiring extensive resources, a large and expensive marketing and export department, a significant volume of the product to be marketed, and fluency in the language of the targeted countries. This is not the case. The goal of this handbook is to lay these myths to rest and open the world of exporting to companies that have previously abandoned the idea and new-to-export-companies. We will begin by exploring common misconceptions. The remainder of the handbook expands upon important issues for a successful export business.

Four Common Misconceptions About Exporting

Your company has to be big

While large companies do the most volume of international trade, smaller companies are also taking advantage of the opportunities available in foreign markets. In fact, a survey by the U.S. Department of Commerce found that 60 percent of successfully exporting American firms have fewer than 100 employees. Product quality, price, and service rather than size determine a firm's success in the export market.

You must have a big export department

The necessary size of company's export department depends upon how products are marketed. A direct exporter sells to a foreign company and is responsible for the transport of the product to the overseas destination. These types of exporters tend to be companies, which consistently move large volumes of product overseas. The export department consists of several specialists for marketing, finance, transportation and insurance. On the other hand, if the company ships sporadically and in small quantities, then the transportation and marketing responsibilities can be handled by one employee.

Many companies begin as indirect exporters, selling and delivering to an intermediary in the United States. Several types of export intermediaries exist and will be discussed in the Chapter 2: Export Intermediaries. If a company becomes an indirect exporter by selling through an intermediary, more specialized staff is necessary than for domestic sales. However, if a company becomes a direct exporter, it will need an in-house export capability.

You must have substantial volume

The fact that many smaller companies are actively involved in international trade is a testament that substantial volume is not a market entry requirement. The foreign buyer, like his American counterpart, seldom looks for a "spot" purchase. Instead, he looks for a quality product at a fair price with continued availability. If a U.S. company merely wants to market its sporadic surplus capacity, then entry into the foreign trade market will probably be disappointing. On the other hand, if the company is willing to devote even 10 percent of production capacity to foreign markets and the servicing of these accounts, then it can expect to build substantial and permanent trade. The servicing of initial accounts is extremely important. Thus, the volume of product marketed is not as important as the consistent product supply. A company that is not committed to exporting often makes this mistake. Do not take your foreign representatives for granted; lack of service and attention to foreign accounts can cripple your efforts to export.

You must be fluent in foreign languages

Occasionally management will cite the lack of in-house foreign language capability as an impediment to entry into international trade. Foreign language skills are helpful when negotiating export agreements but not essential. When correspondence and documents in English will not suffice, exporters can our source translations. Language skills facilitate cultural and social relationships. However, success depends more upon the sound management of the business relationship rather than language abilities.

Your Export Potential

Technical details of selling abroad differ when selling internationally but are reasonably standardized and easy to learn. Once knowledge is acquired, selling abroad is no more complicated than selling domestically. Your productís success in the U.S. is an indication of its potential in overseas markets, especially where similar needs and conditions exist. Nevertheless, even if the sales of a product are declining in the U.S., sizeable export markets may still exist especially when products have reached market maturity or are technically advanced. Less developed countries may have lower demand for state-of-the art technology and may prefer older, cost-effective equipment.

Exporters should consider the differences and similarities that exist between the U. S. and target markets. Failure to do so may result in less than profitable sales. An often-cited example of this phenomenon is Chevrolet's introduction of the Nova car into Mexico. The company did not consider that "Nova" means "does not go" in Spanish. Needless to say, sales were not as high as anticipated. Such an oversight can be extremely costly and embarrassing. To avoid mistakes, exporters should conduct market research. Methods of market research are discussed in Chapter 3.

Making the Export Decision

Once a company determines that its products are exportable, it must decide if the development of an export business adheres to company objectives. Management should ask the following questions:

1. What does the company want to gain from exporting?
2. Is the goal of exporting consistent with other company goals?
3. What demands will exporting place upon the company's key resources, personnel, production capacity and finances?
4. How will these demands be met?
5. Are the expected benefits worth the cost or would company resources be better spent developing new domestic business?

Management's answers to the following questions will clarify the export methods that should be undertaken:

I. Management's Export Experience

1. Which countries has business already been conducted (or inquiries been received)
2. Which product lines are mentioned most often?
3. What countries are inquiries coming from? (A list of the sales inquiries of each buyer by product and by country will be helpful.)
4. Is the trend of sales/inquiries up or down?
5. Who are the main domestic and foreign competitors?
6. What lessons have been learned from past export experiences?

II. Management and Personnel

1. Is top level of management committed to exporting?
2. Who will be responsible for the export department's organization and staff
3. How much time could and should senior management allocate?
4. What are management's expectations for the effort?
5. What organizational structure is required to ensure export sales are adequately serviced?
6. Who will follow through?

III. Production Capacity

1. How is the present capacity being used?
2. Will filling export orders hurt domestic sales?
3. What is the cost of additional production?
4. Are there fluctuations in the annual work load? When? Why?
5. What minimum order quantity is required?
6. What is required to design and package products for export?

IV. Financial Capacity

1. How much capital can be tied up in exports?
2. What export operating costs can be supported?
3. How will initial expenses of the export effort be allocated?
4. What other new development plans are in the works that may compete with export plans?
5. By what date must an export effort pay for itself?
6. Is outside capital necessary?

The plan should be reviewed periodically and actual results should be compared with plan objectives. The plan is a management tool and not a static document. Do not hesitate to modify the plan to make it more specific as new information and experience is gained.

For assistance in the development of an export plan, review Appendix C.

The Value of Planning

An export strategy based on good information and proper assessment increases the chances that resources will be utilized effectively and efforts will consequently be carried through to completion. An export plan assembles the facts, constraints, and goals for a market. It also creates a plan of action, taking all factors into account. The plan includes objectives, time schedules for implementation, and milestones so the degree of success can be measured. At first the plan may be simple; it should become more detailed as your company gains exporting experience. The export plan should address the following questions:

1. What products are selected for export development? Are modifications needed to adapt products to overseas markets?

2. What countries are targeted for sales development?

3. In each country, what is the basic customer profile? What marketing and distribution channels should be used to reach customers?

4. What challenges pertain to each market (competition, cultural differences, import controls) and what strategies will be used to address them?

5. How will the product's export sales price be determined?

6. What operational steps must be taken and when?

7. What is the time frame for implementing each element of the plan?

8. What personnel and company resources will be dedicated to exporting?

9. What will be the cost in time and money for each element?

10. How will the results be evaluated and used to modify the plan?

The plan should be reviewed periodically and actual results should be compared with plan objectives. The plan is a management tool and not a static document. Do not hesitate to modify the plan to make it more specific as new information and experience is gained.

For assistance in the development of an export plan, review Appendix C.

12 Common Mistakes for New Exporters to Avoid

1. Failure to obtain qualified export counseling and to develop a master international strategy and marketing plan before starting an export business.
Define your goals, objectives and the constraints in a particular market. Also, develop a plan to accomplish objectives and counteract potential problems. Often outside assistance is helpful, since most small companies do not have a staff with considerable exporting expertise. Your local U.S. Department of Commerce or Small Business Development Center can assist with the development of your plan.

2. Insufficient commitment by top management to overcome the initial difficulties and financial requirements of exporting.
It may require more time to establish yourself in a foreign market than in the domestic one. Although the early delays and costs involved in exporting may seem difficult to justify when compared to your established domestic trade, take a long-term view of this process and utilize your international marketing efforts to overcome these early difficulties. With a solid foundation for your export business, the benefits derived should eventually outweigh your investment. (Remember: Getting started in the U.S. domestic market can also be difficult at first!)

3. Insufficient care in selecting overseas sales representatives and distributors.
The selection of a foreign distributor is crucial. Complications involved in overseas communications and transportation require international distributors to act with greater independence than their domestic counterparts. Also, since a new exporter's history, trademarks, and reputation are usually unknown in the foreign market, foreign buyers will select goods based upon the strength of your distributor's reputation. Therefore, conduct a personal evaluation of the personnel handling your account, the distributor's facilities and the management methods employed. For additional information on selecting a distributor or agent, see Chapter 2.

4. Reliance on orders from around the world rather than concentrating on one or two geographical areas and establishing a basis for profitable operations and orderly growth.
Distributors must be trained to promote your account actively; their performance should be continually monitored. A company may need to relocate a marketing executive to the distributor's geographical region. New exporters should concentrate efforts in one region or two geographical areas until there is sufficient business to warrant a company representative. Then, while this core area is expanded, the exporter can move to another geographical area.

5. Neglect of export business when the domestic market booms.
Many companies turn to exporting when business falls off in the United States. With the return of a boom in domestic business, many companies neglect their export trade or relegate it to a secondary position. Such neglect can seriously harm the business and motivation of overseas representatives, leaving exporters without recourse when domestic business falls off once more. Even if domestic business remains strong, companies may eventually realize they have lost a valuable source of profits.

6. Failure to treat international distributors and customers on an equal basis with domestic counterparts.
Many times, companies carry out institutional advertising campaigns, special discount offers, sales incentive programs, special credit term programs, warranty offers and similar options in the U.S. market. These companies fail to offer similar assistance to their international distributors. A lack of assistance can destroy the vitality of overseas marketing efforts. Also, many new to export companies fail to take into consideration gross margin requirements.

7. Assumption that a given market technique and product will be successful in all countries.
All markets differ in culture and customs of the targeted area. If a product sells well in the United States, it will not necessarily sell in all foreign markets. In addition, the methods of promoting and selling can be radically different. Countries all have different means of product distribution and selling, such as the existence of large supermarket chains versus small family owned shops. An exporter must do research to determine the best strategy for their objective.

8. Unwillingness to modify products to meet regulations or cultural preferences of other countries.
Foreign distributors cannot ignore local safety and security codes or import restrictions. If necessary modifications are not made at the factory, the distributor must do them -- usually at a greater cost and, perhaps, not at a high level of quality. The resulting smaller profit margin makes the account less attractive. For long term success, food products must be packaged according to local import regulations.

9. Failure to print service, sales and warranty messages in foreign languages.
Although your distributor's top management may speak English, it is unlikely that all sales personnel will. Without a clear understanding of sales messages or service instructions, personnel will be less effective. In turn, the customers will not understand the terms of service of a particular product and may receive false information from a salesman. For food products unfamiliar to local consumers, instructions and recipes in local languages can educate consumers.

10. Failure to consider use of an export management company.
If a company cannot afford it own export department (or has tried one unsuccessfully), it should consider the possibility of appointing an export managing company (EMC). An EMC assists in market research, promotion, sales and distribution of a company's product, therefore saving the company large amounts of time and money. See Chapter 2 for more information on this topic.

11. Failure to consider licensing or joint venture agreements.
Import restrictions, insufficient personnel, financial resources, or a narrowly limited product line cause many companies to dismiss international marketing as not feasible. Nearly any product that can be successfully marketed in the United States can be successfully marketed in any market of the world. A licensing or joint venture agreement may be the profitable answer. In general, all that is required for success is flexibility in using the proper combination of marketing techniques.

12. Failure to provide readily available servicing for the product.
Consumers and distributors are likely to purchase products, which cannot be maintained or repaired. An exporter should provide information and a contact of how to carry out the necessary procedures.