Introduction to Exporting - Part 1

1. ASSESSING YOUR EXPORT POTENTIAL

Exporting

The globalization of the world’s economies has been proceeding rapidly since the early 1990s. Many companies that once used little but domestic materials and labor to manufacture their products or services now go to markets abroad to acquire the resources they need. These developments, coupled with the steady dismantling of trade barriers around the world, have opened up the global marketplace to an unprecedented degree.

There are several good reasons would a company that’s already doing well consider becoming an exporter. These reasons including as below:

• Increased Sales—if domestic sales are good, exporting is a way to expand your market and take advantage of demand around the world. You may also find foreign niche markets where your product is rare or unique.
• Higher Profits—if you can cover fixed costs through domestic operations or other types of financing, your export profits can grow very quickly.
• Economies of Scale—when you have a larger market base, you can produce on a scale that lets you make the most of your resources.
• Reduced Vulnerability—if you diversify into international markets, you avoid depending on a single marketplace. A domestic downturn, for example, will be less damaging if you have other markets where demand remains high.
• New Knowledge and Experience—the global marketplace abounds with new ideas, approaches and marketing techniques.
• Global Competitiveness—foreign companies are entering local markets and domestic companies are going foreign markets. The experience your company gains internationally will help keep you competitive in the global marketplace.
• Domestic Competitiveness—if your company succeeds in the global marketplace, it means your product can compete with the best the world can offer. This helps you succeed at home and ensures your resilience when faced with foreign competition in your domestic market.

Exporting does require you to deal with a variety of challenges, but you can surmount them through careful preparation and planning. Among these challenges are:

• Increased Costs—an exporting venture means you’ll have to meet many short-term costs for things such as extra travel, production of new marketing materials and perhaps additional staff. You may have to modify packaging, or your products or services, to adapt them to markets abroad.
• Level of Commitment—it takes time, willingness, effort and resources to establish and maintain yourself in foreign markets.
• Staying in for the Long Haul—while exporting holds great economic promise for most companies, you can expect months or even several years to pass before you see a significant return on your export investment.
• Cultural Differences—you’ll need to familiarize yourself with the differences in language, culture and business practices in your target market. If you don’t, you risk inadvertently offending your potential customer and losing a sale.
• Paperwork—you’ll have to get used to it. Both local and foreign governments require a lot of documentation from exporters of products and services.
• Accessibility—you have to be easily available to your foreign clients.
• Competition—you must be sure you’re thoroughly familiar with the competition in your target market.

Exporting goods and exporting services present quite different challenges. The former must deal with packaging, customs and physical delivery, for example, while the latter confronts issues such as work permits, credential validation, and travel to and from the market.

 

Are You Ready?

An export-ready business is one that has a marketable product or service, and the capacity, resources and management commitment to deliver it on a global scale at a competitive price. The trick is to determine whether this is true of your company—and if it isn’t, how to make it happen. Your first step is to think about the resources and knowledge your business already has. To begin, consider:

• Your Expectations—do you have:
  Clear and achievable export objectives;
  A realistic idea of what exporting entails;
  An openness to new ways of doing business; and
  An understanding of what is required to succeed in the international marketplace
• Human Resources—do you have:
  The capacity to handle the extra demand associated with exporting;
  A senior management committed to exporting;
  Efficient ways of responding quickly to customer inquiries;
  Personnel with culturally-sensitive marketing skills; and
  Ways of dealing with language barriers
• Financial and Legal Resources—can you:
  Obtain enough capital or lines of credit to produce the product or service;
  Find ways to reduce the financial risks of international trade;
  Find people to advise you on the legal and tax implications of exporting;
  Deal effectively with different monetary systems; and ensure protection of your intellectual property
• Competitiveness—do you have:
  The resources to do market research on the exportability of your product or service;
  Proven, sophisticated market-entry methods; and
  A product or service that is potentially viable in your target market

 

Evaluating Your Export Potential

Can your product or service find a worthwhile market outside your domestic market? It’s crucial to answer this question satisfactorily—if there’s no demand for what you’re offering, you’d obviously be unwise to proceed. Here are some things to take into account when you’re analyzing your export potential:

• Customer Profile
  Who already uses your product or service?
  Is it in broad general use or limited to a particular group?
  Is it popular with a certain age group?
  Are there other significant demographic patterns to its use?
  What climatic or geographic factors affect the use of your product or service?
• Product Modification
  Are modifications required to make it appeal to foreign customers?
  What is its shelf life? Will this be reduced by time in transit?
  Is the packaging expensive? Can it be easily modified to satisfy the demands of foreign customers?
  Is special documentation required? Does it need to meet any technical or regulatory requirements?
• Transportation
  How easily can it be transported?
  Would transportation costs make competitive pricing a problem?
• Local Representation
  Does it require professional assembly or other technical skills?
  Is after-sales service needed? If so, is it available locally or do you have to provide it? Do you have the resources to do this?
• Exporting Services
  If you’re exporting services, what is unique or special about them?
  Are your services considered to be world-class?
  Do you need to modify your services to allow for differences in language, culture and business environment?
  How do you plan to deliver your services; in person, with a local partner or by electronic means such as the Internet?
• Capacity
  Will you be able to serve both your existing domestic customers and your new foreign clients?
  If your domestic demand increases, will you still be able to look after your export customers or vice versa?

Involving yourself in events held by the export community in your area can help you learn about international trade. Seminars and business workshop, for example, can be excellent opportunities to profit from other people’s experience with exporting.

 

Export Quiz

Is your product or service already available?

A. Currently in production or being developed

B. At the prototype stage

C. At the idea stage only

Is your product or service selling in the local market?

A. Selling, and market share is growing

B. Selling, but market share is low

C. Selling in only in your domestic market

Do you have the surplus production capacity or available specialists to meet increased demand for your product or service?

Yes / No

Do you have the financing required to adapt your product or service to suit your target market and to promote it?

A. Financing is in place

B. Financing is being arranged

C. No financing available

Is your management committed to sustaining your export effort?

Yes / No

Does your firm have a good track record of meeting deadlines?

Yes / No

Does your management have experience in export markets?

Yes / No

Does your product or service have a distinct competitive advantage (quality, price, uniqueness, innovation) over your competition?

Yes / No

Have you adapted your packaging (labelling and/or promotional materials) for your target market?

Yes / No

Do you have the capacity and resources to provide after-sales support and service in your target market?

Yes / No

Do you have a Free on Board (FOB) or Cost, Insurance and Freight (CIF) price list for your product, or a rate list for your service?

Yes / No

Have you undertaken any foreign market research?

A. Completed primary and secondary market research, including a visit to the target market

B. Completed some primary and secondary market research

C. No research

Is your promotional material available in the language of your target markets? (Business cards, brochures, websites)

Yes / No

Have you started marketing your product or service in your target market?

Yes / No

Have you engaged the services of a sales representative/ distributor/agent, or partnered with a local firm?

Yes / No

Have you hired a freight forwarder or customs broker?

Yes / No