Last Updated May 2, 2007 7:27 PM EDT
Many entrepreneurs and small business owners who are considering exporting for the first time feel unsure about the best way to approach their export market and how to manage a complex marketing and distribution process from a distance. This article explains the various ways to approach market entry and also suggests how to choose a sensible market entry method for your business.
Direct exporting means actively developing your venture into overseas markets, whether you hire specialists to handle parts of the process or handle the entire process yourself. Indirect exporting means exporting your goods through customers in the United States. Indirect exporting eliminates the need for traveling abroad and the full complexities of direct exporting, but it still requires considerable commitment. It can be a useful route into selling abroad for small-to-medium enterprises and provides a means of testing product viability in new markets
You can choose from a variety of potentially valuable sources:
- The U.S. Government Export Portal and the U.S. Commercial Service provide web sites with information and helpful links.
- Your industry trade association may offer export services and assistance, or at least provide information and guidance.
- The international division at your bank should be able to guide you on the financial implications of export options.
- You may wish to seek the advice of an attorney with expertise in contract law abroad to help you finalize contracts with overseas buyers or distributors.
- The freight forwarder you select to transport your products can also provide advice on contract terms and paperwork.
- To find the names of export representatives who may be able to assist you, consult international export journals and trade press in the markets in which you're interested.
- You may wish to invest the time and money to attend a trade fair or exhibition that covers exporting, where you can glean information and meet potentially useful contacts.
It will help you make the best decision if you take the time to consider:
- the product you're offering, how you intend to promote it, and what service or technical back-up may be required by your customers
- your proposed foreign market and its customary business practices and regulatory issues
- resources available to you, including your staff and their foreign knowledge and language skills and your available technical, marketing, and financial resources.
You may determine that one or more of the following methods will provide your best means of market entry:
- Direct sale. You can sell your product directly to individual customers or outlets abroad. While selling directly will involve considerable time, money, and effort, it can be especially effective when the customer base is limited—for example, when luxury goods are stocked by a small number of exclusive outlets and there is little need for after-sales service.
- Sale through a foreign-owned buying house. Overseas businesses such as grocery or retail chains often have buying houses in the U.S., which make fairly large-scale purchases. As the exporter, however, you will still be responsible for the physical process of exporting the goods.
- Commission agents. They seek orders on behalf of your business in return for an agreed commission on each order. You brief the agent on appropriate prices and terms and usually give the agent sole rights to represent your product in a country or region. Agents legally bind the business they represent to any contracts they sign for product orders. They do not deal with shipping or payment, which must be arranged separately. An agent will accept no credit risk on stock unless they are a "del credere" agent, charging a higher commission to compensate for the risk involved.
- Distributors. They hold stocks of your products, from which they fulfill local orders. Unlike agents, they usually take legal title to the goods, buying from your business and selling on their own account at prices that they fix themselves. They usually also oversee the export process. It is normal to grant the distributor an agreed area of operation and to take orders only from that area through them.
- Franchising. Involves selling a business as a ready-made package to a local franchisee in exchange for fees and a portion of profits. Franchising is a means of expanding your business rapidly while limiting management responsibility. Your product or operation must be unique in some way to be a viable franchise. The franchisee contributes towards capital and resources, and you are expected to provide a range of support, including training and technical services.
- License agreement. Under this method, you authorize another business to use your product names, technical specifications, processes, or patents, and you receive a fee and possibly royalties. Before licensing, you will need to investigate the status of your intellectual property rights and requirements for government approvals in the country of interest.
- Joint venture. Among the many types are those in which you:
1. identify a U.S. firm with strengths that balance your business weaknesses to pool resources and partner with you on exporting. Export clubs can be a good means of locating potential partners.
2. partner with a compatible business abroad. You might, for example, agree to manage each other's export trade, or combine in a joint investment and operation to enter a specific market or markets.
3. sell your products to an international firm. Large international companies, whether U.S.-based or in the export market, often seek new products for their sales portfolio and may consider your product to be a worthwhile addition.
- Export houses. These are firms specializing in providing export services and financing for a fee (sometimes paid by the importer) that take any of several forms:
1. Export consultancies are generally small firms specializing in particular markets. They can offer separate services and support or provide comprehensive export management.
2. Export merchants buy products outright from the manufacturer and sell them abroad. They usually take delivery and make payment in the U.S., and often specialize in certain products. When dealing with a new product, they will require an agreement to protect their investment in building overseas sales, and they may also request product or packaging changes to meet their market requirements.
3. Confirming houses place orders with manufacturers and suppliers on behalf of overseas organizations and attend to all transportation arrangements. They can also act as agents for U.S. manufacturers and seek orders from their overseas contacts.
Different countries operate in different ways when it comes to imports. In many countries, particularly those in the Middle East and Africa, government regulations may dictate the choice of representation (usually an approved agent), and may stipulate the level of commission. Similarly, an entry method that works well in one market may work poorly in another. For your export venture to succeed, you must be fully informed about your target markets and the countries where you want to operate.
Cook, Thomas A., Rennie Alston, and Kelly Raia.
Nelson, Carl A.
International Chamber of Commerce: www.iccwbo.org
National Customs Brokers and Forwarders Association of America: www.ncbfaa.org
Office of the U.S. Trade Representative: www.ustr.gov
U.S. Department of Commerce: www.commerce.gov
U.S. Government Export Portal: www.export.gov
U.S. International Trade Administration: www.ita.doc.gov