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plan In the previous two steps of the export process, you will identified a short-list of countries to focus on and you will have undertaken desk research on these countries and perhaps even visited one or two countries to do in-market research. On the basis of this research you will have identified a country (and possibly even a market segment within that country) to focus on. You will also have taken a closer look at your potential customers and their needs and will have prepared a research report. Now you need to link this research to this export plan that you are busy compiling. Preparing a summary of the research done What you need to do is to draw upon the findings and conclusions you outlined in your market research report and to prepare a few paragraphs highlighting the main factors that you consider to be relevant from this research. This information should not exceed a page or two and can contain several bullet points - for an example, click here. This summary or your research serves as a background to your export marketing plan and provides the reasons behind your export marketing strategies. Revisiting the export SWOT analysis of the firm What is a SWOT analysis? What is a SWOT analysis? SWOT stands for Strengths, Weaknesses, Opportunities and Threats and this analysis is a review undertaken by management or the owner of how these factors impact upon the business. A SWOT analysis is a standard management exercise that should be undertaken in all firms when planning their business activities. An export SWOT analysis simply applies the SWOT analysis to the firm's export endeavours and looks at the firm in the context of its internal and external environments. In other words, as the export manager you will consider and write down what you believe your firm's strengths and weaknesses to be and what opportunities and threats your firm faces from an exporting perspective (presumably your export SWOT analysis will closely relate to your general business SWOT analysis, but will extend the analysis to the international market). SWOT: an internal and external view of the firm It is very important to understand that strengths and weaknesses are internal to the firm, while opportunities and threats are external to the firm. Strengths, for example, might be that your firm has a unique product or staff that speak several foreign languages, or that your company has a very low-cost production system. Weaknesses, on the other hand, might be that you have little understanding of exports, that your products are designed specifically for the local market or that you have very little spare production capacity. Turning to opportunities, these might include, for example, that the world market is experiencing a major growth in and shortage of the product that you produce, or that some major global producer has stopped producing the product that you manufacture or that the The purpose of the export SWOT analysis The purpose of the SWOT analysis is simply to get you to think about the factors, both internal and external, that are likely to have an impact upon your business, either positively (strengths and opportunities) or negatively (weaknesses and threats). Once you have identified these factors, you can begin to plan to either take advantage of the positive factors or to defend against the negative factors. How to do your SWOT analysis We have provided you with an export SWOT checklist that you can download and complete. This is essentially a long list of factors both internal and external that may or may not impact upon your business. Your task is to work through this list and to decide for each factor what the impact is like to be on your business (whether positive, negative or neutral), as well as the likely extent of the impact (significant or minor). Clearly, once you have completed this task, the
next step is to concentrate on the positives and negatives - especially those that will have a significant influence on business performance - and then to take appropriate action in terms of how you plan your marketing strategy to deal with these issues. Export SWOT checklist Export SWOT checklist Strength/Weakness Analysis Effect for your company performance Strength Neutral Weakness High Low 1 Marketing Company image Level of planning Marketing skills Company's reputation for quality Company's reputation for service Accessibility to raw materials Information availability Familiarity with markets Company's market share Market size Market growth Pricing strategy Product R&D New product ideas Marketing positioning Distribution strategy - domestic Distribution strategy - export Ease of entry Geographical proximity Sales force Advertising & promotion 2 FINANCIAL Cost of capital Financial stability Profitability Return on equity Debt to equity ratio 3 MANUFACTURING Manufacturing facilities Economies of scale Capacity to increase production Ability to deliver on time Technical & manufacturing skills Manufacturing costs 4 ORGANISATIONAL Company's leadership Management aspirations for the company Dedication & skill of workforce Entrepreneurial orientation Flexibility & adaptability Staff relations Administration skills Ability to respond to changing circumstances Relationship with suppliers & intermediaries Language abilities Professional qualifications Technical qualifications TQM environment Influence on
Marketing knowledge Information management (use of it) Technology management 5 DEMOGRAPHIC Population trends Age distribution Birth, death & marriage rates Lifestyle trends Mobility trends Population's level of education Change in buying patterns of typical family 6 ECONOMIC Growth of economy Size of market for products Rate of growth Foreign exchange position Stability of currency Convertibility of currency Per capita income Growth Income distribution Balance of economy Rate of inflation 7 POLITICAL/LEGAL Stability of government Tariffs Regulations in competitive practice Product labelling requirements Consumer information requirements Product standards Government controls Legislation regulating business Non-tariff barriers 8 SOCIAL AND CULTURAL Lifestyle trends Ethnicity of the population Changes in consumer tastes Business ethics Social factors in business Other trends Changes in cultural values 9 ENVIRONMENTAL/TECHNOLOGICAL Importance of environmental issues Pace of technological change Innovation opportunities 10 COMPETITION Dominant market players Number of players Production capacity 11 RESEARCH AND DEVLOPMENT Price advantages/disadvantages Distribution advantages/disadvantages Market segmentation Product quality Product positioning Supplier power Customer power
Threat of substitutions Threat of new entrants Intensity of industry rivalry EXTERNAL ENVIRONMENT Transportation costs Availability of transportation Distribution within the market Extent & reliability of communication systems
Setting the export objectives of the firm It is important to realise that your firm's export objectives cannot be divorced from your firm's domestic objectives. Exports are simply an extension of your company's current domestic activities. For example, if you are producing and selling perfumes, it would be unwise to suddenly try and export fashion clothing. Company mission statement and objectives Your export plan should therefore begin with outlining your firm's current mission statement and business objectives. The mission statement outlines in broad terms what the purpose of your company is, while your company objectives set more specific targets usually for a period of time. Example of a company mission statement Beaver Creek is dedicated to growing coffee beans in South Africa from which can be produced coffee of a high quality and of an affordable price. We will work towards producing a range of coffee blends and flavoured coffees that will meet the wide range of tastes of consumers. We will strive to establish successful partnerships with coffee shops throughout the country ensuring that their needs and those of their customers are met, especially in terms of the range, quality and price of the coffees we supply. We will encourage our suppliers, customers and employees to work together to this end and to ensure that the interests and goals of each party are respected. Constantly striving to supply what the consumer is asking for, we will continually review what is available in the marketplace, and what isn't. Creating new coffee blends and providing new products and services to the areas of need will help ensure our success in a market driven by consumer demand. Success will ultimately be measured by our customers choosing us because of their belief in our ability to meet or exceed their expectations of quality, price, service, and selection. Example of company objectives Based on this mission statement, the Beaver Creek's objectives might be: 1. To make Beaver Creek one of the top five suppliers of bulk coffee, coffee blends and flavoured coffees to coffee shops in the major metropolitan areas of Cape Town, Durban. Port Elizabeth and Johannesburg/Pretoria. 2. To expand the range of products each year, by introducing at least five new flavours and/or blends each year. 3. To achieve quality certification for our coffees in the coming year. 4. To increase the extent of land under cultivation for coffee from 1000 to 1500 hectares. 5. To sell at least R5 million in product in the coming year. 6. To achieve an initial gross profit margin of at least 30%, increasing that by at least 1% per year until reaching our final target of 35%. 7. To maintain a solid growth rate of 30% per year for the next five years. You will see from the above that all of these objectives include measurable targets. Based on these targets you can now prepare a host of actions that will enable your firm to achieve these objectives. These actions will be translated into production, marketing and financial plans. To get some more ideas on how to prepare mission statements and company
objectives, visit the BRAIN website at http://www.brain.org.za and read through some of their sample business plans. You could also try SBA Sample Business Plans - http://www.bplan.com/samples/sba.cfm. Expanding the company objective to include exports Based on your initial company mission statement and objectives, the next step is to expand your firm's mission statement and company objectives to accommodate the fact that you plan to export. This you might do by set your export objectives which will expand on your current business objectives. For example, in as far as your firm's mission statement is concerned, you may wish to adapt the mission statement as follows: Beaver Creek is dedicated to growing coffee beans in South Africa from which can be produced internationally competitive coffee of a high quality and of an affordable price. We will work towards producing a range of coffee blends and flavoured coffees that will meet the wide range of tastes of consumers throughout the world. We will strive to establish successful partnerships with coffee shops throughout the country ensuring that their needs and those of their customers are met, especially in terms of the range, quality and price of the coffees we supply. At the same time, we will endeavour to find partners in other parts of the world that will help us market our coffee to wholesalers and retailers in their host country. We will encourage our suppliers, customers and employees to work together to this end and to ensure that the interests and goals of each party are respected. Constantly striving to supply what the consumer is asking for, we will continually review what is available in the local and international marketplaces, and what isn't. Creating new coffee blends and providing new products and services to the areas of need will help ensure our success in an international market driven by consumer demand. Success will ultimately be measured by our customers choosing us because of their belief in our ability to meet or exceed their expectations of quality, price, service, and selection. The above mission statement has been adapted to serve as a basis for the "internationalisation" of the firm. Of course, the mission statement does not state specifically what the firm will do - it only provides broad guidelines as to what the firm would like to achieve. This is quite acceptable, as this is exactly the purpose of a mission statement. The firm's objectives, however, will also need to be adapted to accommodate the planned export activities of the firm. The following additional component could perhaps be added to the list of seven company objectives that we provided above: 8. To establish a market for our coffees in at least two countries and to sell at least 5% of the firm's production in these markets in the coming year, expanding this to ten new export markets and 20% of production over the coming five years. Setting your export objectives In this way, your company's mission statement and objectives have been adapted to accommodate your export endeavours. However, it is important to realise that this does not yet represent your export objectives. Your export objectives need to be developed based on what you have set for your company in your mission statement and list of objectives. Your export objectives could look as follows: 1. To embark on an export drive that will enable the company to establish a presence in at least two countries in the first year and to expand this to ten countries over the coming five years. 2. To commit 5% of the firm's production to exports for the first year and to expand this to 20% within five years. 3. To establish committed partnerships with representatives in the selected target countries that will effectively represent our products in each of the target concerned. 4. To establish an effective and efficient export department that will be able to administer the export activities of the firm. 5. To work towards becoming internationally competitive and to establishing a
global brand that will underpin both our domestic and international business activities. These export objectives again provide a series of measurable targets and focus on committing the firm to its export endeavours. The rest of the export plan will deal with the marketing strategies and activities that are necessary to achieve these objectives. Preparing an export marketing strategy for your firm Introduction With a summary of the research undertaken in step 7 and your export SWOT analysis (discussed in the previous section) in hand, and your export objectives clearly outlined, you can now move on to prepare an export marketing strategy. The export marketing strategy describes how you will meet the needs of the foreign customer. More specifically, the export marketing strategy must indicate how you will adapt your product to meet the needs of the foreign customer, at what price you will attempt to sell the product, how you will inform the customer of your product and encourage them to buy your products, and, finally, how you will get your product to the customer. The marketing information obtained from your export research efforts will be used to draw up your export marketing strategy. We have mentioned marketing a few times already in the above introduction as well as in several other sections leading up to step 8. At this point, it is appropriate just to briefly define marketing. Defining marketing The American Marketing Association defines marketing as: "…the process of planning and executing the conception, pricing, marketing communication and distribution of ideas, products and services to create exchanges that satisfy individual and organisational goals." From this definition can be distilled a number of key elements. The first is the question of exchange. Exchanges occur when at least two parties that each have something of value, and who wish to transact with the other person, communicate with each other and then either accept or reject the other's offer. The second is the issue of satisfying customer needs and organisational goals. The focus of any marketer is the customer; indeed, marketing can be said to be customer-centric. To begin with, the marketer must identify who the customer is and what their needs are (this you will already hopefully have done in the export research section). This information is vital in shaping your future export marketing efforts. The information so far gathered will suggest what changes you need to incorporate into your product, what price you can pitch your product at, how best to inform the marketplace of your product, its attributes and where they can purchase it, and, finally, how best to get the product to the customer. In addition to having a customer focus, it is important to realise that the companies do not go into business or export for no good reason. All organisations - whether profit-making firms or non-profit organisations - have certain goals. These goals may be to generate a return on investment for the firm's shareholders or to delivery certain services to their target audience. As we are mainly dealing with private sector companies, the profit motive is the main organisational goal. The process of planning and executing the activities that we have outlined above, suggests that the firm must bring together all of its resources (financial, equipment, labour and management skills) to achieve customer satisfaction and organisational goals. A total systems approach by the firm to its activities is therefore another key element of this definition. The marketing concept These three elements (i.e. customer focus, goal/profit orientation and total systems approach) combine to underpin the marketing concept, which says that in order to be marketing orientated, firms must take a systematic approach in their business activities, bringing to bear all of the resources of the firm in order to achieve customer satisfaction, while at the same time achieving company goals. The marketing mix Finally, the AMA definition identifies four main activities which we have already
mentioned in the above discussion (commonly referred to as the "4Ps" of marketing) and which the firm must focus its attention on in order to achieve its marketing objectives. These 4Ps are: • Planning and developing/adapting products (and their packaging), and services according to customer requirements • Establishing prices that offer value to customers and a profit to the supplier • Promoting products and services through personal selling, advertising, direct mail, the internet, etc. • Distributing (also referred to as "place", hence the 4Ps) the products and services from the supplier to the ultimate customer through appropriate distribution channels These four activities constitute the traditional marketing mix and represent those aspects of marketing over which you, the marketer, have control. The marketing environments Leading on from the above statement, the variables comprising the marketing mix are sometimes referred to as controllable factors and represent the micro environment of the firm. They are referred to as controllable varibales because the firm has control over them and can (relatively easily) change them as may be thought appropriate. The marketing manager, however, must also take into account uncontrollable factors such as the market and macro environments within which the firm must operate. In the domestic market, the market environment includes shareholders, customers, suppliers and the other business partners of the firm, while in the foreign marketplace, the market environment includes the import intermediaries, customers and other organisations that the exporter must deal with in his/her export endeavours. The macro environment, on the other hand, includes the legal-, politic-, socio-cultural-, technological-, and economic-environments that firms around the world have to deal with on a daily basis. These environments we dealt with in step 1 of the export process - we link to them again here, should you wish to refresh yopur memory. The market and macro environments are also commonly referred to as the external environment, while the micro environment is known as the internal environment. In both the case of the market and macro environments, the marketer has very little or even no control whatsoever. The marketer, for example, cannot change the cultural, legal or political environments within which they operate. Similarly, although they may be able to influence their suppliers or customers, they do not actual have full control over them; for this reason the variables in the market and macro environments are known as uncontrollable factors. A company which is able to co-ordinate its entire business system including its finances, its machinery and equipment, its human resources, its competitive processes, its management expertise, and its marketing mix to focus on the satisfaction of customer needs profitably within a dynamic external environment is usually assured of success (quite a tall order, mind you). Against the background of the company's overall business and marketing objectives, the challenge of the marketing manager is to use tools such as market research to mould the controllable elements of marketing (i.e. product, price, promotion and distribution) within the framework of the uncontrollable elements of the market place. One mistake often made by some individuals is to confuse marketing with advertising or promotion or even selling. While marketing incorporates all of these things, it involves much more. Marketing drives the firm's activities; from the research that is required to understand the firm's potential customers, to sourcing and procuring the materials needed to manufacture the products that customers need at a price they can afford, to promoting and selling these products to customers, to ensuring that the products are delivered to the customers where they need them, and, finally, to ensuring that customers are satisfied with the firm's efforts. Of course, the more foreign markets you attempt to target the more difficult and expensive your export marketing endeavours will become - it is
therefore advisable to select a particular market at first and then once you have succeeded in this market, you can then extend your marketing endeavours to other markets. Moving on to your export market strategy The above discussion hopefully provides you with a broad overview of what marketing entails. Clearly, there is much more to marketing than this, but that is not part of the scope of this website. What we now need to do is to prepare an export marketing strategy. This strategy, we have already said. will outline how your firm intends to adapt the countrollable variables (the product, its price, promotion and distribution) to best meet the needs of the foreugn customer. The export marketing strategy provides a fairly broad discussion of these four elements, with perhaps no more than a page or two being devoted to each of the four elements. In the coming sections we will discuss each element in more detail highlighting some of the issues that need to be considered when preparing your strategy in respect of each element. The export product Introduction Central to any corporate business plan are the profit-making prospects of a company's various activities. As profits cannot be achieved without a product or range of products (or services) which satisfy the constantly changing desires and needs of customers, an effective product strategy is crucial to the success of an enterprise. The firm's product strategy is also a fundamental component of the firm's overall marketing mix. The promotion of an unacceptable product could lead to initial purchases but will fail to achieve the all-important repeat business. Defining a product Essential to the success of any product strategy is an understanding of what, in marketing terms, constitutes a product. A product can be defined as 'the total utility or satisfaction that a buyer (the customer) receives as a result of a lease or purchase'. Thus a product is not merely viewed as a collection of materials but rather as the means whereby a company turns its resources into satisfying customer needs in order to achieve profits and growth. According to Peter Drucker in Management: Tasks, Responsibilities, Practices: It is the customer who determines what a business is. It is the customer alone whose willingness to pay for a good or service converts economic resources into wealth and things into goods. What a business thinks it produces is not of first importance - especially not to the future of the business and to its success. What the customer thinks he is buying, what he considers value, is decisive - it determines what a business is, what it produces and whether it will prosper. And what the customer buys and considers value is never a product. It is always utility, that is, what a product or service does for him. Product components A product can be broken down into four specific components: 1. The tangible goods or services offered to the buyer 2. The packaging, labelling, trademark, brand name and all other aspects of a product's package 3. The services that accompany the product, e.g. the instructions, warranties, delivery, installation, repair and maintenance and the availability of spare parts 4. The benefit which the buyer expects to receive from the purchase Products - satisfying needs The primary objective of marketing is to give the customer whatever (s)he wants in a purchase. Theodore Levitt, a well-known management author, remarked that what customers want when they buy quarter-inch drills are quarter-inch holes. In other words, the drill itself is only a means to an end. The lesson here for the drill manufacturer is that if the entrepreneur really believes the business is the manufacture of drills rather than, say, the manufacture of the means of making holes in materials, (s)he is in grave danger of going out of business as soon as a
better means of making holes is invented. Needs differ, therefore products must differ Customers' needs and the benefits they perceive resulting from their purchases will often vary significantly according to the level of economic development of the countries in which they reside, as well as the social and cultural environments in which they operate. The adaptation of such benefits may be necessary if a product is to meet a particular culture's needs and changes may have to be made to any one, or all, of product's features. For example, the introduction of personal care items to a culture that prefers that body functions remain private can upset locally accepted values. Product resistance because of cultural differences has been evidenced in nearly very country in the world. Insurance, for example, has been difficult to introduce into Muslim countries because they believe it to be associated with usury and gambling. Many people avoid pork because of their beleifs, while the Japanese tend to be averse to body jewellery. The French proved unexpectedly hostile to frozen foods when they were first introduced. Exporters could thus find themselves selling very different products in foreign markets from those sold domestically. Alternatively, the firm may not sell a product at all and instead, could sell the rights to brands and trademarks, knowhow and patents on products or processes (licensing), or could sell services such as skills in research, design, production, marketing or general management. Factors to consider in preparing a product strategy for export markets In preparing a product strategy of export markets, there are a number of factors that you need to consider. These include: • Product modification - adaptation versus standardisation of your product • New product development • Eliminating obsolete products • Product design and quality • The production process • Packaging for exports • Labelling for exports • Product brands and trade marks • Product servicing Preparing a product strategy statement for your export plan These issues we discuss in detail in subsequent sections. Once you have worked through these various issues, you should be able to prepare a statement outling your export product strategy. This statement should address the issues outlined above, namely; whether you will be adapting your product for the export market; whether there are any mandatory design or standards you need to adhere to; what product quality levels you hope to achieve; whether you will need to redsign the product; whether you need to adapt the production process within your factory; whether you will promote a specific brand; whether will you register this brand; whether you need to make use of special packing and/or labelling; and what servicing you will provide your foreign customer. Product adaptation vs standardisation When planning to enter (a) foreign market(s), you need to consider whether or not your current products will meet the needs of the foreign target market. After all, this market is likely to have a totally different environment that you will need to come to terms with. As we have mentioned before, this environment may have socio-cultural, legal, economic, technical and even geographic differences from the domestic market that you are familiar with. The market research investigations that you have undertaken should provide you with a good idea as to what product strategy you need to follow. Technically, there are essentially three product strategies at your disposal. These are: 1. Sell the same product as you are currently selling in the domestic market, to all of your foreign target markets - product standardisation 2. Modify the product to meet the needs of the foreign environment - product
adaptation 3. Invest in and develop a totally new product for the export market - new product development Given the limited resources and competitive strengths of most companies, it is unlikely that your company would be able to tackle both a new market and invest in new product development simultaneously. It is also very seldom that companies can enter a foreign market without adapting their product at all (this is commonly referred to as product standardisation) - usually some form of product modification is necessary (if only very minor - this is referred to as product adaptation or product differentiation). The realistic choice at your disposal is therefore: • Make only the minimum of changes to your product to meet the needs of the foreign marketplace; or • Make significant changes to your product in order to meet the needs of the foreign marketplace In choosing a particular product strategy, you need to compare the likely improvement in sales turnover and profit levels with the additional costs involved in, for example, product modifications, new market research, additional product R&D, and shorter production runs. However, the firm would first have to assess: • How much is already known about the customer requirements in the various markets • The extent to which these requirements differ • Whether the various requirements could be met through superficial changes to the product (e.g. packaging) or whether the product will have to be completely redesigned • The extent to which customers in different markets could, as a result of various promotional messages, be persuaded to accept a product which will have less than ideal characteristics, but would nevertheless be cheaper, rather than one which has been completely adapted to their needs but which will ultimately be more expensive • The size of the market, as this would determine whether or not product modification would, in fact, be profitable It should not be forgotten that the product is more than just a physical item - it is a bundle of utilities that the buyer receives. These utilities include the product's form, taste, colour, odour, texture, its packaging, labelling, warranty, service requirements, etc., as well as the actual functioning of the product. In short, the market will react to a product in the light of its own values and customs. Let us briefly discuss the factors influencing the choice of product strategy. Factors favouring product standardisation The following are the factors that favour product standardisation: • Economies of scale in production: Where the product is manufactured at one plant, long production runs can give rise to considerable economies of scale (assuming that the decreasing costs per unit will prevail over the full extent of output required to satisfy export markets). • Economies in development costs: A standardised product permits amortisation of development costs over a larger production volumes and turnover • Reduction in stock costs: Additional products give rise to the need for additional records and stock audits. Furthermore, each product must be stocked to a level that not only caters for normal demand but also includes a safety margin to cover unexpected upsurges in demand. Consequently, the minimum 'safe' stock level for several different products will exceed that for one standard product. • Technological content: Whereas consumer products are likely to be affected by cultural and environmental differences in the foreign market, industrial processes are relatively uniform from one country to another and many industrial products can therefore be standardised, especially those in which technical specifications are critical. Even when industrial goods are modified, the changes are likely to be minor, e.g. adjustments may have to be made to the voltage level,
or metric measures (metres, grams and litres) may have to be changed to imperial measures (yards, pounds and gallons), etc. • Consumer mobility: Standardisation is essential to consumer acceptance where products are of particular relevance to travellers or tourists, e.g. camera film, baby foods, etc. • Economies in marketing: Although sales literature and advertising may vary from country to country - at least in terms of the language in which the advertising message is conveyed - it will be easier to achieve uniformity (and thus, savings) with a standardised product than with one which must be adapted to suit various foreign markets. In addition, it is easier for the company to provide after-sales service and parts for a standardised product. • Market homogeneity: Some products are homogenous and a world market is available without product modifications being necessary, e.g. blue jeans, CDs, raw materials, etc. Factors favouring product adaptation The following are the factors that favour product adaptation/differentiation: • Maximisation of profits is usually the primary motivation for going to the expense of modifying a product and is in direct contrast to the policy of cost reduction through standardisation. • Differing consumer tastes affect food, fashion, and household products, in particular. However, they also have a strong influence on the design and manufacture of items such as motor cars. For example, the French normally show a strong preference for 4-door models whereas the Germans prefer 2-door models. • Inadequate consumer purchasing power may necessitate a low price and a corresponding reduction in the quality (e.g. finish or grade) of a product. Packaging, in particular, would be affected in such a case. • Variations in national conditions, such as different approaches to wearing and washing clothes may necessitate different kinds of washing machines, or soaps and detergents. In some European countries, boiling water is used for washing and, consequently, washing machines must have special built-in heaters. In developing countries, on the other hand, washing is done in streams or rivers and bar soap is much preferred to packaged soap powders which are ineffective if the water used for washing is not confined to a washing machine or other container • Where the level of technical ability is generally low, a product may have to be simplified or provided with good back-up. Poor maintenance standards in developing countries may give rise to the need for improvements to product reliability or the simplification of the product. • Tariff levels may dictate local manufacture or assembly, or local purchase of components, thus preventing standardisation. • Government taxation policy may necessitate changes to the product in order to reduce the amount of tax payable, e.g. car tax related to engine size. • Due to varying road and traffic conditions, cars, trucks and tyres may need to be modified depending on whether they are destined for industrialised or developing countries. • Sometimes climatic conditions dictate that modifications be made to products that are sensitive to temperature or humidity, e.g. the composition of car tyres will vary from one market to another depending on the extremes of climate. Similarly, the inclusion of heaters or air conditioners in certain car models will depend on the climatic conditions of the markets concerned. • When a product is perceived as new in a particular market, it may have to be adapted in order that consumer resistance and slow market growth may be overcome. • Local labour costs may influence the extent of automation in the production process. Mandatory product modifications In certain areas, exporters are not free to decide whether or not a product should undergo modification, e.g. where government regulations or technical requirements are of overriding importance. Such modifications fall into three categories:
• Legal requirements: Minimum or special standards are often imposed by law. In addition, government regulations relating to product packaging and labelling, particularly in the case of food and drugs, can influence product modifications. For example, the mandatory declaration of certain food preservatives on the containers of food products could have a detrimental effect on consumer acceptance of the product. • Nationalism: Governments may require that a certain proportion of components be of local manufacture. South Africa, for example, at one time required that a minimum percentage of the components of motor vehicles be manufactured locally. They may even forbid the importation of certain goods; however, this form of restriction is now discouraged. • Technical requirements: Certain technical changes, e.g. in voltage or in the calibration of measuring instruments, may be necessary. Evaluating the need for product modification There are five criteria in respect of which the likely acceptability of a new source of supply (or one perceived as such) in a specific market can be assessed. These are: 1. The relative advantage that the product has over the product it replaces or those products with which it competes. Relative advantage is usually perceived by the customer as additional value - therefore, a product perceived to have a relative advantage is unlikely to require modification 2. The product's compatibility with existing values and behaviour patterns 3. The complexity of the product, which could lead to the consumer experiencing difficulty in understanding the product's purpose and/or how it works 4. The extent to which the product may be used on a trial basis, e.g. the availability of samples or the extent to which the product may be purchased on a limited basis prior to the importer having to commit himself to large numbers 5. The extent to which the advantages of accepting the new product can be observed by prospective buyers A product which, when rated against each of the above criteria, does not score highly, is likely to require modification, as well as requiring greater emphasis on advertising and sales promotion in order to overcome consumer resistance. A product can frequently be modified physically to improve its relative advantage over competing products, to enhance its compatibility with cultural values and even to minimise its complexity. In addition, small sizes, samples, packaging, and product demonstrations can assist in overcoming resistance. New product development Although in most cases exporters generally try to export the products that they are currently producing in the domestic market (albeit it often with some minor or even major - adaptations), the time may come to consider developing a new product specifically for the export market. This may not be as illogical as it first seems. The exporter may identify a need that is not currently being met and the exporter may have the technical expertise to develop and produce the desired product. This opportunity may give rise to the exporter undertaking the necessary research and development (R&D) to bring the new product to life. Sources of new product ideas There are a variety of sources of new product ideas including: • Your firm's distribution agents and/or company sales staff operating in the various export market • The overseas customer (with whom you are in constant contact) • International organisations and publications that report on new inventions including new patents • Exhibitors at international trade fairs. Some fairs are general industrial shows but others focus on a specific product or industry, e.g. automotive, electronics, photographic, etc. and are a generous source of new product ideas. • Planning programmes of governments and international agencies. These are published by international organisations and cover all types of economic activity.
Projects in agriculture, infrastructural development, health, education, housing, etc. can indicate new product opportunities for equipment and chemical manufacturers, food and pharmaceutical companies, publishing houses and educational suppliers Advantages of getting new product ideas from the foreign marketplace There are several advantages in obtaining new product ideas from the foreign marketplace: • Because the idea is generated by a market need, it is less speculative than an idea based solely on technological possibilities. • he market needs identified are usually high priority items and are therefore assured of financial backing. • Response to market needs can assist the company in acquiring a better corporate image in the market place where it will be seen to be identifying with specific problem areas. • The company may be able to benefit from selling, in other markets, the product originally developed for one country. Besides for developing new products, the time may also come for an established exporter to consider eliminating obsolete products from the market place. Eliminating obsolete products It often becomes necessary to eliminate certain products from a range because they: • Involve expensive, short-run production lines as demand diminishes • Take up an excessive amount of management and salesman time • Project the image of a conservative and technologically backward company • Delay the search for new products. (Management may be hoping that the poor product performance is temporary or is the result of inadequate marketing.) However, before a product is abandoned, factors other than those highlighting current product profitability should be taken into account. These include: • The likely effect on sales and profits in the event of product rejuvenation • The likely advantages of a change in the product marketing strategy • Alternative product opportunities open to the company • The extent to which the product assists in the sale of other products in the range Before moving to eliminate an export product, you need take into account the market potential for the product in all of your markets. Although the product may be only marginally profitable in the domestic market or in one specific export market, it may be in the growth stage of its life-cycle in other markets where it is influenced by different per capita incomes or different purchasing patterns. Product quality and redesign Introduction In preparing an export product strategy, you will making an important decision as to whether to keep your product largely as is, or whether you will be adapting the product any way to address the needs of the foreign customer. This decision will depend on the nature of the product, the needs of the marketplace and the products of your competitors. For the most part, however, some degree of product modification is normally necessary, even if it only has to do with the product packing or labelling. When considering how to introduce product modifications, you may want to consider the redesign of your product, as well as improving its quality. The role of product redesign Innovative design is an important way of differentiating a product from its competitors. Take Apple computers, for example. Apple have managed to set themselves apart from the competition through innovative design. Their latest offering - the iPod - has become a firm favourite amongst the world's consumers simply because of its sleek and sexy design. As a result of the design of their iPod products, Apple have been able to charge a price premium for these products. Not only should you be looking at design as a way of setting your product(s) apart
from the competition, but you should also be considering ways in which design can help to reduce the cost of the product (through cheaper and fewer components), improving its reliability and enhancing quality. Design innovation can also be manifested in the packaging and labelling of a product (consider how products such as Valpre mineral water sets itself apart from competitors through innovative bottle design and classy labelling). Indeed, packaging and labelling are two relatively easy (and cheap) ways of enhancing the perceived design of a product. After all, it is likely that you will in any case have to introduce new and special packaging and labelling designs for your export product. For this reason, you might as well ensure that they are well designed. The role of product quality Quality is a significant measure of product differentiation, particularly in highly competitive markets abroad. Importers are likely to choose higher quality if all other factors are the same and they are also likely to pay a premium for higher quality. It is therefore essential that you give consideration to improving your product quality. You can improve quality in several ways: • Improve the design of the product so that it is less complex, requires fewer components and can be produced at higher tolerances • Adapt your production process to facility quality manufacture and reduce defects • Introduce more quality inspections into your product process • Adopt quality processes and standards such as ISO9000 and TQM • Train your staff to be more quality conscious Improving the production process Introduction Ultimately, if your are a manufacturer or some form of producer, your export product is created or adapted within some form of product process. Usually there is a production system that takes an input (raw materials and/or components) and converts these inputs into an output - the product. This output may be an intermediary product that serves as input to another part of your product process. At the end of this multistage production process, there is a final product which you will package and export. The effectiveness of your overall production process contributes to the quality and success of your final product. Considering ways to improve your production process To begin with, if your product needs to be adapted in some way to meet the needs of the foreign marketplace, it is highly likely that your production process will need to be changed to accommodate these product modifications. Secondly, you may want to consider how you can improve your product process to incorporate quality improvements and design changes. These production changes may involve: • Acquiring and installing new and/or additional machinery • Rethinking the workflow of your factory floor • Training your staff to work more efficiently and productively Packaging for exports The packaging component of a product includes elements such as packaging, labelling, trademarks, brand names, quality, and price. As is the case with the physical product, packaging is subject to influences favouring standardisation on the one hand and adaptation to specific market needs on the other. In deciding whether to standardise or diversify the packaging, there is again a need to take into account mandatory requirements (especially in respect of product labelling), as well as both protection and promotional considerations. Packaging Whether or not the same package can be used for a product in both the domestic and foreign markets will depend on a number of factors: • The kind of product protection needed in one market may differ from that required in another, e.g. a hot, humid climate will probably necessitate a different type of packaging from that which would be suitable in a cooler, drier climate. The kind of transportation and handling the product is subjected to can also influence the design of the packaging. Package ought to provide greater
protection if the product is likely to be subjected to poor road conditions, long distances, and frequent or rough handling. • Furthermore, the length of time the product is likely to spend within the distribution chain will increase the demands on the packaging, as will the way in which the ultimate buyer uses the product. If the buyer uses the product at a relatively slow rate and the product is likely to be stored for a considerable length of time, a more durable form of packaging will be required. • The promotional aspects of packaging also tend to vary from market to market, e.g. a country with a large number of very small retail outlets will probably require a type of packaging that is different from that which is suitable in a country where large supermarkets are common. • Packaging size is also likely to be a key factor, e.g., a high level of car ownership and a developed supermarket/hypermarket retail system will normally signify the use of relatively large packages, whereas a low per capita income might suggest the use of small, or even individual, packages for items such as cigarettes, chewing gum, razor blades, etc. • Similarly, the cost of packaging is likely to vary according to the purchasing power of a market's population - an elaborate package can add on a significant amount to the price of the contents. • Cultural factors will have a considerable influence on the types of packaging that are likely to attract consumers, particularly in respect of features such as colour, shape, material used, and so on. If it is the intention that a product should be recognised throughout the world, universally recognisable standard packaging must be used. • The widespread concern about pollution has also become an important consideration - more and more consumers are now avoiding products sold in 'nonenvironment friendly' aerosol cans because of the publicity surrounding the contribution made by aerosols to the deterioration of the ozone layer. • Mandatory packaging requirements are increasingly being imposed in some countries, where specific bottle, can and package sizes are stipulated by law as are certain units of measure. In many countries laws exist that require packaging to be environmentally friendly. Packaging material may also have to be removed and recycled by the manufacturer or distributor. Facilities and additional costs must be catered for. Labelling for exports The following factors may impact labelling: • Labelling laws vary from country to country and do not seem to follow any set pattern. For example, every country has its own local labelling regulations which specify the type of information that must appear on particular products, e.g. the name of the manufacturer, the country of origin, the product's weight or volume, a description of the contents, the product's ingredients or special information regarding additives, and chemical or fat content. In certain countries prices are required to be printed on the labels while in other countries, it is illegal to give any indication of the retail price on the packaging. A country using the metric system will probably require that all weights and measurements appearing on packaging also conform to the metric system. • Some countries, such as Belgium, Canada and Switzerland, which are multilingual, require that labels be printed in more than one language. Other countries, however, forbid the use of foreign languages on label. • Government regulations aside, a manufacturer requires that the label on its product communicate information to its customer and facilitate the correct use of the product. This should encourage initial and repeat purchases and promote consumer satisfaction. It is therefore essential that the information on the label be conveyed in the language of the market. An exception might be the marketing of, say. French perfumes or cosmetics, where the use of certain French words or phrases helps to give the product a sophisticated image. • Where a great deal of information must be conveyed to the customer, e.g. in the case of technical products or certain drugs, the label may contain a brief
description in one language, but this should be supplemented by a detailed multilingual leaflet inserted accompanying the package. • Occasionally, a company may use multilingual labels for several countries (e.g. the EU) in order to reduce costs. This is acceptable if a multinational image is likely to impress a customer. In general it is more beneficial to incur the additional labelling costs that will ensure a unique national image. • Special attention should always be given to the correct translation of brand names. Coca-Cola's experience in China demonstrates the negative effects of errors made in this regard. When the company first set up manufacturing facilities in mainland China, translators chose characters that sounded like Coca-Cola but which to the Chinese actually read "Bite the wax tadpole"? • Cultural differences influence design aspects and should be taken into consideration when instructions in the form of pictures or symbols are provided on product labels. Symbols can often be misinterpreted in the market place. A sixpointed star used in one company's trademark, for example, created product resistance in the Middle East where the star was seen to symbolise pro-Israeli sentiments. In another case, yellow flowers used in a trademark resulted in rejection of the product in Mexico, where a yellow flower means death or disrespect. Brands and trademarks A brand is a name, term, sign, symbol or design, or a combination of these, which is intended to identify the goods or services of one seller or group of sellers, and to differentiate them from competitors. A trademark is a brand or part of a brand that is given legal protection because it is capable of exclusive appropriation. A trademark serves the following purposes: • It indicates the origin of a product • It is the customer's guarantee of quality • It enables the manufacturer to promote a product without fear of having the innovation duplicated by a competitor Selecting brands and establishing brand policy are important aspects of export marketing. In terms of the latter, the exporter will have to decide how to protect the company's brands and whether this protection should be national (i.e. within a specific country only) or international (i.e. worldwide). The effects that cultural differences may have on the use of a brand in a particular market should also be determined. The protection of brand names is complicated by the many difficulties experienced in registering trademarks in certain countries and by the prevalence of brand imitation and brand piracy. Trademark registration There are two different systems for the national protection of trademarks: 1. "Priority registration", whereby the first to register a trademark within a particular country retains the exclusive use of it in that country. This system is used in code law countries such as France. 2. "Priority in use" whereby evidence of sales having been made within the country concerned, is required. Common law countries, such as the UK and the USA, require priority in use. In the first system, use generally follows registration while in the second system, registration follows use. In some countries, registration is renewable at certain intervals for a fee. Consequently, the costs involved in protecting trademarks can be substantial. Attempts have also been made to provide international protection of trademarks. The Arrangement of Madrid is an agreement whereby a trademark registered in one subscribing country in the name of a locally domiciled organisation is automatically registered in all other subscribing countries, provided it qualifies for registration in these countries. It should be noted that very few countries subscribe to this agreement. A trademark is a sign that serves to distinguish goods or services of one
enterprise from another. This sign may consist of one or more distinctive words, letters, names, numerals, figures, or colours. To ensure that the distinction remains, most countries have introduced laws to protect trademarks. The WTO realised that the development of world trade can be adversely affected if standards adopted by countries to protect intellectual property rights vary from country to county. For this reason the agreement on Trade-Related Intellectual Property Rights (TRIPS) was negotiated and accepted by all WTO members. Brand imitation In some markets of the world, there is a tendency for local manufacturers to take advantage of the promotional expenditure and reputation of an international supplier. They do this by producing similar products under the same or a very similar brand name. Often similar packaging and labelling is used as well. The intention is to persuade customers that they are getting the international product. Brand imitation is particularly rife in the fashion (e.g. watch) and drug industries. Although imitation may be the sincerest form of flattery, the compliment has little appeal when it means lost sales! One of the agreements reached at the Uruguay Round of GATT talks was that governments will now restrict the trade in counterfeit goods, thus protecting legitimate manufacturers. Brand piracy A 'brand pirate' deliberately registers brand names with the intention of selling them back at a profit to the companies in which they originated when these companies eventually wish to enter the market. Should a company refuse to pay the price asked, it will either have to register and establish another brand, or find another market. In markets where brand name registration is uncomplicated and relatively inexpensive, individuals have been known to make a living from this practice! Brands and cultural differences A particular brand name may not be pronounceable in the local language of the foreign market. Usually, the longer the name, the less suitable it is for translation into other languages. In addition, the brand name could be found to have an undesirable or obscene connotation in the foreign language. Although this may be solved by making a small change in spelling, in most cases, a new brand name needs to be found. Brand policy Once it has been decided to protect a particular brand, the countries in which the exporter will register the appropriate trademark must be identified. Although it may be tempting to register a particular trademark in all countries, the expense involved will be a strong deterrent. It would be foolish, however, not to register it in those markets targeted for future export sales. In terms of other countries, the following factors should be considered: • Market potential • The ease and cost of registration, including legal costs • The expense and inconvenience of selecting a new brand name in the event of brand piracy or brand imitation • The relationship between the brand name and product sales - the brand name may be vital in this regard • The importance and cost savings attached to establishing a single international brand name " For an excellent source on trade marks, click here http://www.ggmark.com/ Product servicing The importance of servicing In the competitive environment of the global marketplace it is not sufficient anymore to just sell products. Instead, the foreign buyer will expect - even demand - that these products be supported by the exporter. This support is provided in the form of product servicing. The significance attributed by customers in all parts of the world to service facilities is often underestimated
by the manufacturer; customers will usually give preference to locally produced goods if they have the slightest suspicion that the after-sales service provided by a foreign supplier will not meet their needs. On the other hand, a high standard of service can give an otherwise undistinguished product a competitive edge. The success of Volkswagen in the US in the 1960s serves as a good example in this regard. Although there was an increased tendency in the USA to buy "second" cars, this did not really explain why: "The second car should be a VW, the most saleable buy at its price... but hardly the roomiest, smartest, fastest or technically best small car that Europe produces today. The answer lies in the early service and dealer concept." (Mellon 1965)C h a p t e r F o u r An international servicing strategy A clearly defined international servicing strategy is essential in today's competitive environment. The objective of such a policy should be to ensure the satisfaction and goodwill of the foreign customer and, consequently, to secure repeat purchases as cost-effectively as possible. Bering in mind that we are dealing with sales in far-off markets, the initial investment involved in setting up servicing facilities and ensuring the availability of trained personnel, can be quite considerable. So how do you provide service support for the products that you sell? There are essentially two different ways that you can approach the organisation of servicing facilities in foreign markets: • You can seek out and appoint reliable distributors that already have an organised servicing network compatible with your product to do the servicing on your behalf. To this end you may need to train your distributor's support personnel at your company's premises or you may choose to travel to the distributor and do the training there. Alternatively, you could consider seconding one or more company maintenance personnel to the distributor to undertake the servicing that is required. • You might want to adopt a direct servicing approach which requires you to fly out to the customer whenever servicing is necessary. This option is often used for capital equipment of considerable value and size. Alternatively, where sales are concentrated in one geographical area (say in Europe), preventive maintenance staff may be based abroad. Adapting the product to require less servicing In some countries, the concept of routine or preventive maintenance is not part of their culture. As a result, products may have to be adjusted so that they require less frequent maintenance and special attention has to be given to features which may be taken for granted in more sophisticated environments. Taking local circumstances into consideration The literacy and educational levels of a country may also necessitate changes being made to product instructions. The Brazilians, for example, successfully overcame the problem of the low literacy and technical skills of Third World users of their sophisticated military tanks by including video cassette players and video tapes with detailed repair instructions as part of the standard instruction package. Planning for service It is clear that planning service for support in exports involves the balancing of a number of interests and the compliance with multiple requirements. Within a firm, the resources and potential for development offered by research and design, the extent of production facilities, the existing product range, the services already available to customers, the availability of finance for additional investment and the skills of the company's personnel have to be taken into account. In relation to the target markets in question, the opportunities and constraints arising from consumer demand need be considered. Technical standards, government regulations, tariff and non-tariff barriers, transport and distribution services, the characteristics of marketing intermediaries and competition also have to be
taken into account. Armed with information about all these aspects, the exporter will be in a position to decide: • What modifications are practicable without substantial cost increases and what, in effect, would be regarded as major changes to the product. • How the methods of production can be adapted and whether the enterprise can take advantage of slack periods in production to increase export sales, thus assisting the company in achieving year-round economies of scale in production. • Which new products are likely to meet the requirements both of overseas markets and the domestic market. The export price Introduction Price is perhaps the most important element of the marketing mix. It is, after all, the only element of the marketing mix that generates income - all the others (i.e. product, promotion and distribution) cost money! In addition, in order to penetrate international markets, a competitive edge is important and price is a major contributor to competitiveness. You should bear in mind, however, that it is not the sole determinant of competitiveness - technological superiority, worldwide company image, or scarcity of supply, for example, could also ensure success in the foreign marketplace. However, although a non-price competitive edge can result in customer acceptance of premium prices, this is not usually achieved without considerable investment in both time and money, and it is usually on the basis of price that the less affluent or smaller firm establishes itself in a new market. Factors that impact on price setting Determining the right price for a specific market depends on a number of factors, namely: • The cost of producing and marketing the product • The cost of getting the product to the customer • The unique features of the product • The quality and design of the product • The impact of your promotional effort • The potential export volume and cost of securing these export sales • What the market will bear • The competition • What the authorities in the importing country may permit • The amount of investment required • The risks involved A seven-step process in setting your export price When we come to implementing your export marketing strategy, we will help you deal with most of these issues. In setting an export price, there are essentially seven steps to follow: 1. An important input to your export pricing exercise is the information you gathered when doing a pricing analysis in your target market. This pricing analysis will have formed part of your export marketing research that you undertook earlier on in the export process. The information gleaned from your pricing analysis you will use throughout this export pricing exercise. 2. Your next step is to identify all the costs associated with producing the product in question (some of this information will come from within your firm, while information will come from the pricing analysis you did earlier). After all, whatever price you set, you want to at least cover your costs - if you don't then you may soon go out of business. Marginal costing is the one pricing strategy in which you purposefully do not strive to cover all your costs and we discuss this strategy a little later on. 3. Once you have identified your costs, the next step is to review your export objectives take your pricing analysis of your target market into consideration and then to decide on a pricing approach - the pricing approach you decide on will influence the ultimate pricing strategy you for export market. 4. With your pricing approach in mind, choose a pricing strategy that you
believe will meet your needs. 5. With your pricing analysis, total costs and this strategy in mind, your next step is to decide on an export price for your product. Remember that your export price is not necessarily the final selling price in that market. 6. Working with this export price, you now need to estimate the other additional costs that are likely to affect the final selling price of your product (such as commissions of intermediaries, VAT or other sales taxes, excise taxes, credit terms to be offered to customers, etc.). These additional costs will also have been determined during your pricing analysis. Add these cost estimations to your export price and then estimate what your final selling price is likely to be. 7. Finally, you would compare your final selling price with the market-related prices of similar products (namely, your competitors) - this information you will have obtained when doing your pricing analysis - see step 1 above. It is highly unlikely that your first costing exercise will translate into a selling price that is competitive. If your estimated selling price is not inline with the competition, you may have to work backwards and review all of the costs involved in marketing your product abroad, to see where you can still make some savings! You will more than likely need to review your costing and price-setting process and try to make changes to the product and/or packaging, reduce costs, rethink your channel intermediaries, consider alternative promotional activities, and consider lower margins, in order to end up with a final selling price that is more realistic and competitive. Preparing a pricing strategy statement for your export plan These above-mentioned issues we discuss in detail in subsequent sections. Once you have worked through these various pricing issues, you should be able to prepare a statement outling your export pricing strategy. This statement should: • Sumarise your price analysis undertaken in step 7 of the 21-step export process • Briefly discuss your costing exercise (you might attach a copy of your costing sheet as an appendix) • Identify the pricing approach and pricing strategy you intend to follow • Propose an export price Step1:Undertaking a price analysis of your target market Reviewing your earlier pricing analysis As part of your export research undertaken in step 7 of the 21-step export process, you would have undertaken an export price analysis. This price analysis started with an assessment of the demand and competitive situations in the target market and would have resulted in you establishing an estimate of a market-related price for your product(s), taking these demand and competitive situations into consideration. In addition, your analysis would have attempted to identify all of the costs you would likely incur in marketing and distributing your product to your target market, as well as the costs that your customer and other intermediaries would incur in getting the product to the end consumer.. This price analysis would have formed an important section in your export research report. Your findings would now serve as a key input into your pricing strategy. As part of your preparation of an export pricing strategy in your export plan, you would summarise the findings of your price analysis that you presented in the export research report. The findings would be used to calculate an export price and to guide your export pricing strategy. Work backwards to a quick estimate as to your price competitiveness As a quick rough guide to determine whether your current ex factory pricing that you use in your domestic market is viable or not, it is suggested that you working backwards from the market price to a base (or ex works or ex factory) price. The various intermediary costs associated with transport, inland distribution, storage, import duties, agent's commissions, taxes, etc. must be subtracted from the market price (which you have just identified above). These are the costs that you would have identified as part of the price analysis undertaken in step 7 of
the export process. In addition, you also need to subtract your expected promotional costs, travel abroad, international communications, spoilage, cost of credit terms, spoilage and returns, servicing costs, and minimum profit margins that you require. Once all of your 'export-related' costs have been accounted for, you should be left with a base (or ex works/ex factory) price referred to above. You would then compare your actual current ex factory price for domestic sales with this base price that you have now just calculated. Hopefully, your ex factory price for the domestic market will be much lower and you will feel excited that you can compete on price in your export market. However - unfortunately - this is unlikely to be the case. The chances are more likely that your current ex factory price will be higher (if not significantly higher) than the base price you calculated in this exercise. This exercise highlights pricing problems or opportunities If your domestic ex factory price is lower than the base price you calculated from the anticipated market price, then you can confidently continue with a more formal costing and pricing exercise in the next step of this pricing process, knowing that your prices are "in the ball park" and that you are able to compete on price in your export market(s). If, on the other hand, your domestic ex factory price is considerably higher than the base price you have estimated, you need to undertake a very careful costing exercise in which you think long and hard about the costs involved and how you can reduce them or whether you can possibly get away with increasing your export pricing. Remember, though, if you are entering a new market, there may not be much opportunity to increase your export prices as foreign buyers are not likely to be so accommodating to the "new kid on the block". Why do I have to do two 'costing' excercises? In the next step towards of this export pricing process, you are expected to undertake a formal costing exercise. Why then do you need to do this backward costing exercise proposed above? Well, price is such an important element of the marketing mix, that you need to give it a lot of consideration. This backward calculation is a 'quick and dirty' exercise intended to determine whether you face a pricing problem or pricing opportunity. This knowledge should help guide you in your formal costing exercise in putting emphasis were it is needed most. If this quick backwards calculation indicates that you face pricing problems then you might think differently about certain costs that you plan to incur - you may decide to travel abroad less or make use of online marketing to generate business, instead of placing an expensive ad in a trade magazine, for example. This backward costing should not take you too long and can be done quickly and roughly; it simply puts your pricing and costing into the right perspective. In fact, pricing is so important, we expect that you will need to review your costing exercise several times before you make your first export sale. Step 2: Costing for exports A summary of where you have come from In the previous step (step 1) of the export pricing process, you reviewed the price analysis you undertook as part of your export research. Your price analysis provided you with an indication of a market-related export price, an assessment of the demand and competitive factors likely to impact on your final export price, and identified the likely export-related costs you would incur in marketing and distributing your product in the foreign target market. With this information in mind, you then undertook a 'quick and dirty' price comparison working backwards from the market-related price and deducting all of your export-related costs to get to a base (or ex works) price. You then compared this base price with your domestic ex factory price to see whether you are price competitive or not. You know have an idea whether you face a pricing opportunity or pricing problem. Given the competitive nature of global markets, it is more than likely that you face a pricing problem (i.e. you cannot match the market-related price you identified from your export research).
The need for a formal costing process The previous section was a quick calculation simply intended to give you an idea of where you stand - that is, whether you are likely to face a problem with your pricing or not. It was not intended as a formal costing exercise. By knowing whether you need to be 'tighter' with your costing, you will be more aware and sensitive to the various pricing and costing alternatives you might face. You now have to undertake a more formal costing exercise to highlight with greater certainty the costs you face. The purpose of this costing exercise is to: a. Ensure that you have identified all of the costs likely to impact on your final export price b. Estimate as realistically as possible the actual costs associated with each cost item c. Determine the export pricing strategy you will follow based on your costs, your expected final price, the demand and competitive factors you face, and the flexibility you have with your export price setting d. Find ways of cutting costs (by reducing expenditure in certain areas, for example) e. Decide on a final export price There are many costs involved One of the major challenges in exporting is ensuring that you remain competitive yet still make a profit. Bear in mind that the channel between your firm and your customer is much longer than in the domestic market and that there are many intermediaries along the way. You need to account for the wide variety of additional costs you will encounter, such as distribution costs, documentation costs, the cost of additional channel intermediaries, as well as the taxes and tariffs that you will encounter when doing business with overseas markets. Indeed, you will find to your dismay that there is a cost around every corner. The price at home will not be the price abroad These costs all contribute to either a higher price or to lower margins (i.e. lower profits). There are many company executives that in their travels abroad have looked at the selling price of products similar to theirs in an overseas market and that have then translated this price back into rands and thought to themselves they cannot help but "make a killing". However, once they embark on the export road to "millions' they soon discover that all of these many, many costs between their factory door and the client's warehouse quickly erode any chance of extraordinary profits. More often than not they find to their dismay that their products once landed in the export market are in fact more expensive than those of their overseas competitors. At this point many exporters give up. The more competitive exporters then begin to look for ways of reducing costs and creating additional value - if they are determined enough, these last-mentioned entrepreneurs are bound to succeed. The need to cost for export One way of overcoming these obstacles is to undertake a thorough costing exercise and to think carefully about the pricing strategy you plan to follow. In the next few sections, we will take you step by step through the costing process and we will introduce you to alternative pricing strategies. The costing exercise begins with your production costs You export costing exercise begins at a stage before the ex works or ex factory price. It begins with estimating the costs associated with actually producing the export product. The reason for this is that by saving costs in the production process, you can achieve a lower ex works/ex factory price and this will have a positive impact on the resting of the 'costing chain'. OK, let's tackle the costing exercise Thus in this section, we take you step by step through the typical costs that you will encounter in export markets. We begin with the typical costs of manufacturing a product and then we add the costs that you are likely to incur as you move closer to your customer. These cost schedules are simply guidelines. Every company, industry and different country may have different costs associated with
them. You need to ensure that you have identified all of the costs associated with your particular company, industry and target country. Careful and realistic costing is a crucial part of the export process. Costing Guidelines Introduction to the formal costing exercise A costing sheet enables an exporter to: • Check that every expense has been covered in arriving at the export price. (Please note that the costing sheet is a guide only. We cannot be held responsible should you neglect to include a cost that is important to your export price. For this reason, we recommend that you sit down with your accountant or with a business partner and carefully consider all the costs that may impact upon your export price!) • Provide a detailed record of the terms that have been quoted to the foreign buyer. This costing sheet has two sections: • The first section - outlined below - discusses all of the items included in the export costing sheet (it is essential an instruction manual for completing the costing sheet) • The second part is the sheet itself - click here to access the costing sheet Guidelines for completing the costing sheet 1. Determine your product cost The starting point in your export costing exercise is to determine the cost of producing the product you intend exporting. To this end, there are two types of costs you need to calculate; the first is your fixed cost, which includes costs that you would have to pay whether you produced any products or not such as the rent for your factory (these costs stay the same irrespective of how many items you produce for export), and the second is your variable cost, which includes those costs directly associated with producing the goods and which will vary depending on the number of items you produce. To learn more about fixed and variable costs, click here. Fixed costs include all factory overhead such as rent, rates and taxes, lights and water, etc.; the cost of senior management which have to be paid irrespective of how many goods are produced; administrative costs such as insurance; selling costs and advertising costs; etc. Variable costs include the cost of materials, the labour involved in the manufacturing process, etc. 2. Include all product adaptation costs If you will be using your domestic cost calculations as a basis for this export costing exercise, you should then also include any extra costs associated with making any changes or adaptations to the product in question. However, if you start a completely new costing exercise specifically for your export production, then you will not have to worry about these costs as they will already be included in your production costs. See also product adaptation. 3. Include all individual and sales packaging and labelling changes to the product It may be necessary for you to make changes to the unit (or individual) packaging of your product (for example, your overseas customer may want glass packaging instead of plastic packaging for your medical preparations, and/or the labelling of each unit may also have to be different to accommodate language and regulatory requirements). Besides for the individual packaging, you may also have to include the cost of changing the sales packs that you use for your product. Your sales packs include those boxes in which you pack 10 or 20 or more units and which are used for display in stores (of course, not all products make use of sales packaging - for example, industrial machinery is not likely to require sales packaging but certain food items). Such sales packaging will almost certainly have to be adapted for the export market in respect of language, design and regulatory information. As far as labelling is concerned, these may have to be printed in a foreign
language, perhaps containing information not included in the labels used within the local market. Also, from a sales point of view, they must be suitable to the foreign consumer. The selling price of the product must include sufficient allowance for these extra labeling costs. The above costs can be considered to be the Product Costs 4. Bulk packing, crating and labelling for export This is different from the individual and sales packaging we referred to above. Instead, it refers to the bulk packaging (and accompanying labelling) necessary to ensure the safe delivery of your goods to your customers. In some instances this may involve the crating of goods or the palletising of goods combined with shrink wrapping. At this point, the goods have not yet been containerised (if they will be sent by container - this task still lies ahead and the cost thereof needs to be included later). The cost of packing for overseas shipment will vary according to the product, destination, and means of transportation. You must include reasonable provision for these expenses. 5. Marking A small cost needs to be allocated to the stenciling of an identification mark on each package for export. 6. Strapping In some instances, cartons or crates may have to be wire- or nylon-strapped to help prevent it from being accidentally opened en route to its destination. Small packages that are not going to be containerised should also be strapped together to discourage pilferage and other loss. 7. Internal documentation costs There may be documentation that must be produced to accompany the consignment such as a packing sheet. The cost of producing this documentation must be included here. 8. Bank interest charges Producing the goods may take some time (days, weeks or even months) to be produced and then these goods may be kept in storage for even longer awaiting shipment. During this time, there is money/capital tied up in the goods and you may have had to borrow the money to produce these goods (even if you did not borrow money, you could have earned interest on your own money that you have used). For this reason, it is wise to include these interest charges (or lost income) in your calculations. 8. Profit Once all of the above costs have been calculated, you need to include your profit margin into the calculation. What margin you decide on will depend on your costs, your export objectives, the circumstances prevailing in your target market, your intended pricing strategy, etc. 9. Agent's commission abroad If you have appointed an agent abroad, you may need to include the agent's commission into your Ex Works price. This is usually calculated on a percentage basis. At this point, you have now arrived at your Ex works price Ex Works (EXW) is an internationally used term to indicate a specific selling condition that is outlined in the INCOTERMS 2000 - a set of rules defining the responsibilities in international trade contracts, compiled by the International Chamber of Commerce. To learn more about the Incoterms, click here. 10. Loading the goods Once you have produced and packaged the goods for export, and placed the goods at a suitable point for collection (usually your warehouse), the next step is to load the goods onto the means of transportation that is to be used to move the goods to the airport or harbour. Usually, the means of transportation will be a van, a motorised truck or railway truck. Where goods are to be sent by container, the container must be ordered, delivered and loaded. In the case of Ex Works, the seller is only responsible for placing the cargo at the buyer's disposal at a convenient point in the factory or warehouse (a loading
ramp, say). As the seller, you are not obliged to load the cargo onto whatever means of transportation will be used to collect the goods from your factory or warehouse - this task is the responsibility of the buyer. However, it remains a negotiable item and the buyer may request for you to load the goods onto the truck that they arrange to collect the goods from you. If this is what has been negotiated, then you will need to cost the loading of the goods onto the truck to be supplied by the buyer as part of your Ex Works cost. 11. Pre-shipment inspection Some overseas buyers may require that the goods be inspected before they leave the exporter's premises. Usually they will require an independent third-party to do this inspection. Generally, the cost of the inspection is paid for by the importer, but it may be negotiated that the exporter carries this cost. In this unlikely event, you will need to include these inspection fees as part of your costs. 12. Freight forwarder's fee If you plan to make use of the services of a freight forwarder for documentation and book the shipping space required, allowance must be made for the fee involved. The amount of these fees can be obtained in advance from the forwarder or shipping agent. 13. Local inland freight There are essentially four ways that your goods can be transported to the country of destination (referred to as cross-border transportation) - air, sea, road and rail. Air and sea are commonly used for destinations that are far away (e.g. Europe, Asia, Americas), while road and rail are commonly used for destinations in Africa. However, road and rail are also used to get your goods to the nearest airport, harbour or railway station for cross-border transportation. This is referred to as inland freight. Whichever cross-border mode of transportation you use, you have to decide how to get your goods from your factory or warehouse to the required harbour or airport or railway station (i.e. which inland freight method will you use?). In the case of road transportation to a destination in Africa, the truck will probably come direct to your factory/warehouse, collect the goods and take them all the way to the end destination, thereby combining the local freight component and the crossborder freight component into a single freight cost. However, in the case of the other three options (rail, sea and air), there will usually be a local inland freight component that you will need to including in your costs. 14. Unloading charge There is usually a charge for unloading goods from railway cars or trucks. This cost will be incurred when the goods arrive at the seaport or airport. There may also be unloading and loading costs incurred if goods are moved from one transport medium (e.g. truck) to another (e.g. rail) somewhere along the inland freight component and such costs must also be taken into consideration. 15. Terminal handling charges At the harbour there are specialist companies that take responsibility for all the handling of goods and payment of harbour and wharfage dues at the quay side. These are referred to as wharfage companies and you will need to account for their fees in your costing exercise. Similar costs are incurred at airports but these services are provided by the airline in question and are included in the air freight costs and are usually not a separate cost. 16. Long or heavy load charge If the shipment is exceptionally long or heavy, an extra charge may be incurred. 17. Consular documents Although not a common requirement, some countries require consular documents to be purchased before they will allow goods to enter their borders. These documents can be quite expensive, particularly in the case of export to the Latin American countries. Initially, the exporter may wish to quote to the foreign customer a price of so many dollars plus the cost of consular documents. If not, it must make adequate provision in the price to cover their cost.
18. Financing charges Until payment is received, your firm will have part of its working capital tied up in export merchandise. Even if no credit is given, it will have to wait until the goods are shipped or delivered before payment is made and even the payment process may take some time. If credit is given to the foreign customer, you may have to wait an additional 60, 90, or 180 days for payment. Your selling price should include an amount to cover the cost of this working capital. What is more, if you intend to discount at your bank a time draft that has been accepted by the foreign importer, in order to obtain your money sooner, then allowance must be made in your export price for bank discount charges. 19. Export credit insurance You may want to buy credit insurance or "Factoring" for your credit sales abroad. If so, then allowance should be made for it. 20. Other charges Here, space is left for the inclusion of unexpected additional expenses such as the cost of overseas telephone calls associated with the delivery component of the contract, extra storage charges that may be required, etc. At this point, you have arrived at your FOB price Bear in mind that an FOB price requires the goods to cross the ship's rail for your responsibility to end. Thereafter the buyer takes responsibility for all the costs. 21. Ocean freight This cost includes the shipping of the goods by sea to the foreign port. The cost may be quoted by the ocean carrier (i.e. the shipping line) in local currency or U.S. dollars. At this point, you have arrived at your C & F price 20. Marine insurance You will want to insure your firm against financial loss from all possible risks, including damage to the goods or theft while they are being shipped abroad. Usually, ocean freight is insured for 110 percent of its total value to cover anticipated profit and the interest cost of working capital tied up in the shipment. At this point, you have arrived at your CIF price 22. Conversion into foreign currency The foreign buyer will usually ask for a price quotation in US dollars or perhaps in euros, Japanese yen, British pounds, or some other currency. Therefore, the price in rands must be converted to a price in the foreign currency. Care must be taken to use the correct exchange rate. You may wish to eliminate the risk of an exchange loss by selling the foreign currency to a bank on a forward basis, in exchange for local currency. The cost of this bank service, which provides you with a predetermined, fixed rate of exchange for any foreign currency you will sell to the bank in the future, should be included in the export price quoted to the foreign importer. Costing sheet framework A. Calculating an EX WORKS price Start Production costs Direct raw material and component costs (including delivery charges) R Direct labour costs R Product adaptation costs R Individual and sales packaging and labelling adaptation costs R Factory overhead (including rates and taxes, lights and water, etc.). Pro Rata R Administrative costs (including office administration, IT systems, insurance, etc.). Pro Rata R Production finance charges. Pro Rata R Total cost of production +R
add Foreign research, promotion and sales costs Travel and accommodation costs R Research costs (desk and in-house research costs, including research agency costs), adaptation R Communication costs (faxes, telephone calls, etc.) R Translation and/or creation of advertising material, presentations, catalogues, videos etc. R Agency marketing costs and other professional fees, such as sales commissions R Patent and trade mark fees R Total cost of foreign research, promotion and sales +R add Preparation for shipping costs Bulk packing, crating and labelling R Marking of crates and containers R Strapping or wrapping of crates and pallets R Documentation costs R Total shipping preparation costs +R equals Total Ex Works cost of product = R add Export financing costs and profit mark-up Cost of financing R Export credit insurance R Discount of receivables R Currency conversion costs R Provision for bad debt R Cost of credit checks R Total export financing costs +R Profit margin (Allow for unforseen costs, unavoidable risks and simple mistakes common in new undertakings) +R equals QUOTE FOR EX WORKS PRICE R B. Calculating a FOB price Start with Total Ex Works cost of product R add Inland freight costs Freight forwarder's fees R Documentation costs R Factory loading costs R Local inland freight R Unloading charges (including any heavy-lidt costs, if applicable) R Storage charges R Wharfage costs R Terminal charges R Additional sealing of containers requested by shipping line R Non-standard container handling charges R Total inland freight costs +R equals Total FOB cost of product R add Export financing costs and profit mark-up Cost of financing R Export credit insurance R Discount of receivables R Currency conversion costs R
Provision for bad debt R Cost of credit checks R Total export financing costs +R Profit margin (Allow for unforseen costs, unavoidable risks and simple mistakes common in new undertakings) +R equals QUOTE FOR FOB PRICE R C. Calculating a C&F price Start with Total FOB cost of product R add International freight costs International freight/shipping charges R Total shipping costs +R equals Total C&F cost of product R add Export financing costs and profit mark-up Cost of financing R Export credit insurance R Discount of receivables R Currency conversion costs R Provision for bad debt R Cost of credit checks R Total export financing costs +R Profit margin (Allow for unforseen costs, unavoidable risks and simple mistakes common in new undertakings) +R equals QUOTE FOR C&F PRICE R Calculate a CIF price quotation Start with Total C&F cost of product R add Marine Insurance costs Shipping insurance coverage (usually 110% of value) R Total marine insurance costs +R add Export financing costs and profit mark-up Cost of financing R Export credit insurance R Discount of receivables R Currency conversion costs R Provision for bad debt R Cost of credit checks R Total export financing costs +R Profit margin (Allow for unforseen costs, unavoidable risks and simple mistakes common in new undertakings) +R QUOTE FOR CIF PRICE R
Calculating a DDP price quotation Start with Total CIF cost of product R add Customs costs Customs duties R Custom clearance fees R Total customs costs +R
add Destination port handling costs Unloading at receiving port R Broker fees R Storage costs R Total destination port handling costs +R add Foreign inland freight costs Loading charges R Inland transportation costs R Unloading at destination R Any additional transshipment costs R Freight forwarding fees R Total foreign inland freight costs +R add Export financing costs and profit mark-up Cost of financing R Export credit insurance R Discount of receivables R Currency conversion costs R Provision for bad debt R Cost of credit checks R Total export financing costs +R Profit margin (Allow for unforseen costs, unavoidable risks and simple mistakes common in new undertakings) +R QUOTE FOR DDP PRICER Step 3: Approaches to pricing Three broad approaches will guide your pricing strategies You have completed the formal costing exercise and you now know what your costs are. The next step is to decide on an export price. This decision is divided into to parts; the first is to decide on the broad pricing approach you intend to follow (which we discuss below) and the second is to decide on a specific pricing strategy. As far as the broad approaches to price setting are concerned, there are essentially three ways in which you can approach your pricing in foreign markets. These are discussed below: 1. Competitor-oriented pricing In terms of this approach, your pricing decisions would depend on what the competition does. Competitor-oriented pricing is the approach to follow when you are dealing with a market where prices are openly set through the process of supply and demand as in the case of most commodity markets such as coal, coffee, wheat and gold. It is also common in markets where there are one or two powerful competitors that set the price levels, for smaller suppliers to follow. 2. Cost-oriented pricing In the case of cost-orientated pricing, you would calculating your total unit cost and add on a profit margin to arrive at an export price. Consumer demand or competitor actions thus have little bearing on your decision-making. This approach is commonly used in the case of industrial goods where it is often difficult to differentiate between products in terms of their perceived value to the customer. 3. Demand-oriented pricing Also referred to as market-orientated pricing, the demand-oriented company sets prices according to the intensity of demand for the product. Where demand is strong high prices are normally set, and where demand is weak lower prices are the norm. The unit cost is not a major determinant of pricing in this case, although it is obviously taken into consideration when the lower limit on a price is considered. Demand-oriented prices are usually applied to branded consumer goods but they may also be appropriate in respect of many industrial products. From pricing approaches to pricing strategies In formulating an optimal pricing strategy for your export markets, it is
important to recognise and accept the approach to pricing that you intend to follow (these have been discussed above), as your approach will to a large extent determine the export pricing strategy that you will ultimately implement. In the next section we will discuss the various export pricing strategies at your disposal. The strategy that you will eventually adopt might any one or more of the following objectives in mind: • Aiming to reach a particular profit level • Striving to become a low-cost competitor • Attempting to carve out a specific market share for your firm • Establishing an acceptable market image (as a bargain or premium supplier) • Reinforcing a product differentiation strategy that you may have decided to follow in a particular market, i.e. based on a unique feature which differentiates your product from its competitors • Combating competition • Attempting to stabilise prices • Creating a competitive advantage for your firm based on your price • Securing wider distribution by offering your intermediaries a great share of the income Step 4: Export pricing strategies at your disposal Introduction In the process of determining a final export price, there are a number of pricing strategies that you could follow, but obviously only one strategy that you will follow at any time. These strategies are briefly discussed below and the strategies are associated with the pricing approach that you have decided to follow in the previous section (see step 3). Whatever pricing approach and associated strategy you choose, your starting point is always the costing exercise we discussed in step 2. Unless you know exactly what your costs are, whichever approach and strategy you follow will always be a risk as you may be selling at a price that does not cover your costs and therefore you will be loosing money with every sale that you make! Your costs represent the basis upon which your final export price is built. Once you have calculated your costs as outlined in step 2, then you may want to choose from one of the following strategies (which have been organised according to your approach to pricing outlined in the previous section): 1. Approach to pricing: Competitor-orientated Commodity-based pricing In the case of commodity markets, e.g. wheat, tea, coffee, grain, prices are established through the interaction of a large number of buyers and sellers. There are usually publicised world prices that set the pricing levels in these types of markets. As an exporter competing in such markets, you will need to keep to these prices - this is known as commodity-based pricing. Any exporter quoting prices in excess of the price prevailing in the marketplace would effectively cut themselves out of the market - they would, of course, be equally foolish to quote below the prevailing rate. If you operate in commodity-type markets your primary function would be to keep production costs and overheads as low as possible in order to increase profits. Competition-based pricing Of course, commodity markets are not the only markets in which this type of competitor-orientated pricing takes place. There may be industries in which many participants compete with one another, and, although there is no publicised world price for the products in question, there is an accepted narrow range of prices within which you will need to compete. Follow-the-leader pricing Another form of competitor-orientated pricing occurs in markets where there is an extremely dominant supplier (or perhaps two) that has the largest market share and that essentially sets the price levels for that particular market. The other, usually smaller, producers play a follow-the-leader approach to pricing and keep to the pricing set by the market leader (although they may offer a small discount
compared with the market leader's price to entice buyers to purchase their goods). 2. Approach to pricing: Cost-orientated Cost-plus pricing In this instance, you would calculate your firm's costs very carefully and then you would add a fixed percentage as a profit margin to the total cost. In this instance, you would probably quote the same price for different markets. What is more, you are likely to use the same base price (or Ex Works price) for the domestic market as for export markets. The problem with this approach is that it does not take into consideration market and country differences, or the role of foreign competition. Early cash recovery If your company regards its position in the export market as being somewhat precarious (e.g. impending import restrictions could exclude it from the market altogether, or where liquidity is a problem), it might adopt a strategy aimed at rapid cash generation. The objective here is to pay back your investment as quickly as possible and thereafter to make as much profit as possible, as quickly as possible. Satisfactory rate of return on investment The cost-oriented producer of industrial goods who wants to achieve a uniform rate-of-return on investment often adopts this strategy. Near standardised prices are set at a level that will realise a certain percentage of profit for a given amount of investment and level of risk. 3. Approach to pricing: Demand (market)-orientated Market penetration The intention behind a market penetration strategy is to stimulate market growth and/or to capture a substantial share of the market. This strategy is often used when the product has a lot of competition or is very ordinary. This usually requires the establishment of a relatively low price within a price sensitive market. This strategy, which is dependent on production economies of scale and other cost reduction factors, obviously carries a high degree of risk. Careful consideration would need to given beforehand to the possibility of adverse movements in exchange rates, the imposition of import restrictions, etc., that could result in unexpected financial losses. Market skimming With market skimming, you would enter the foreign market initially with a high price. You can really only do this if your products are in demand or are very unique. The intention with this approach is to take advantage of the perceived uniqueness of the product or demand for the product while it is new or while there is little other competition. In such instances, it is usually not long before the price has to be reduced to attract more price-conscious buyers, or to defend against competitors as they come onto the market or as the demand drops. This approach is often used in the marketing of computer products and other technology items, clothing, as well as books where relatively expensive hard-cover editions precede the cheaper paperback editions. (Think about the introduction of a new technology such as DVD and the high prices that are initially charged for this technology.) What the market will bear With this strategy, you set a price that you believe the customer will be prepared to pay. This is an approach to take if you have done quite a bit of research on what customers are prepared to pay or can afford to pay. Differential pricing In adopting this approach, the demand-oriented exporter - usually of consumer products - takes advantage of different price levels in various countries by establishing a different price, based on what the market will bear, for each export market. The success of differential pricing depends to a large degree on the extent to which markets can be kept separate. Where markets are integrated, such as in the EU, for example, problems could arise where the product is purchased at a low price in one country and resold at a higher price (but one that
undercuts the original supplier) in another country. With the advent of the Internet, it is becoming more difficult to introduce differential pricing. In most cases, where a company uses its web site to sell its products (e.g. Amazon.com), buyers visiting this web site would surely query why different prices exist for different markets. They would inevitably demand that they also enjoy the benefit of the lower prices available to other markets and for this reason it is becoming less feasible to have differential pricing when selling over the Web. Moving on to setting an actual export price The next step in the export pricing process is to decide on a specific export price that covers your costs and meets the objectives of your pricing strategy. Step 5: The export price - Your key to success Deciding on an export price - the price that you will sell your product(s) at Establishing an export price is about covering costs, ensuring sales and generating profits. The long-term objective of pricing setting is to achieve sufficient volumes (i.e. numbers of units sold) to ensure maximum profits after all costs have been covered. Setting a high price could limit the volume of goods sold, whereas a low price might increase volume but could have an adverse effect on profits. As a rule, the total cost of exports (which include the cost of designing, developing, producing, packaging, distributing, marketing and servicing the products), plus a minimum required profit (also referred to as a 'profit margin' or just 'margin'), should be used to set the lower limit on the price. The upper limit of the price will be that price above which the company cannot remain competitive and it is determined by the potential value that customers place on the product and the amount of money that they are prepared to pay for it. Often, this value will depend on the circumstances of the buyer. For example, a moderately priced household product may be considered too expensive by parents with considerable family commitments. On the other hand their son, who has a lower income but no such responsibilities and who pays no more than a nominal contribution towards board and lodging, may consider the same product to be cheap and good value for money. Similarly, a dishwasher may be considered an essential purchase by some consumers, but regarded as a luxury by others. The impact of the export price on export/sales volumes Generally, the higher the price the lower the quantity of the product that will be purchased (i.e sold). However, the impact that a particular price will have on sales volumes is determined by a number of factors beyond price, including: • The supply of competing products • The current price of competing products • How the competition reacts to being undercut (or, alternatively, how they react to a higher price than its own being set) • The nature of the market segment the company has chosen as its target • How the buyers in this market segment react to the price • Competitive advantages which the product might have, e.g. high quality, unique features, a favourable image in the market place, etc. Price setting does not happen in a vacuum Within the range of prices permitted by the market place, the competition and various government regulations, the exporter is responsible for setting and attempting to control the actual prices of the goods traded in different markets. The challenge is to arrive at a selling price that will enable all costs to be recovered and that will provide the best possible return on the investment made and the risks being taken. To achieve this goal, an image for a product must be projected that focuses on value-for-money and once customers have decided to purchase, a marketing strategy must be used to convince them that their decision was a sound one. Export price competitiveness You have now decided on an export price, but will this price work in the
marketplace? Your next step is to check the competitiveness of your export price in the target foreign market. You would do this by comparing your export price with the market-related price you identified in step 1 of the export pricing process. If you find that your price is too high, you must decide whether your product quality, design, uniqueness, promotion, etc. will offset this higher price (this is unfortunately seldom likely to be the case, especially for a new exporter). If you still consider this price to be too high, you may consider alternative ways of reducing it, perhaps only temporarily, in order to get a foot-hold in that foreign market. Some of the ways in which you can reduce your price, include: 1. Accepting a lower profit margin 2. Recalculate your costs to reduce the contribution allocated for fixed costs, or factory overheads - this technique, is referred to as marginal pricing, is possible only if the exporter has a substantial domestic market to pay for all the fixed costs. 3. Revisit all of your cost items to see where you can reduce costs - click here to read more about cost reduction strategies If you find that you cannot afford to lower your price, you may need to find ways to improve the attractiveness of the non-price features of your firm's product offering e.g. use of a brand name, better design, higher quality, better packaging, better promotion, faster installation and other initial and after-sales services. If you find that your product is priced lower than other competing products (may you be so lucky), you may decide to raise the price above what you have initially set. Clarification ahead of time as to the discounts, rebates and promotional allowances you may be required to offer your agents or distributors is also important, because, the cost of these items must be included in the calculation of the export price. You should also keep in mind that you might want to have the flexibility to offer a lower price, better credit, on more favorable delivery terms to attract special customers. So the cost of these concessions also need to be built into the overall export price. At this point, you have done everything necessary to prepare an export price strategy for your export plan. The steps that follow really have more to do with implementing this strategy (and will be revisited in step 10 of the 21-step export process). Nevertheless, we also discuss them here, because it is often difficult to distinguish between planning and implementing when it comes to price setting! Your export price is seldom the final selling price in the marketplace This is a very important issue. In the case of many products - especially consumer products - is likely that you will be selling your exports to an intermediary perhaps an importer, distributor, wholesaler or retailer. This intermediary may then sell your products on to other intermediaries who eventually sell the product to the final consumer. But not before having added a whole host of additional costs (such as transportation costs and commissions) to your export price. Depending on what basis you sold your products to your customer, they may have to still pay the import duties and other costs to clear the goods through customs (assuming that you agreed that the importer - and not you - would take care of these costs). This will inflate your export price quite considerably and the final selling price to consumers may be a lot higher - even double or more - than your export price. You should not assume your export price to be the final selling price and you must take these additional costs into consideration when comparing your final selling price with the market-related price you identified from your export research - see step 1. If you do not, you will not be comparing 'apples with apples' and you may find yourself priced out of the market. Of course, it is fair to assume that your initial buyer (i.e. not the final consumer) would not have bought from you had (s)he not thought it possible to sell your products on to these other intermediaries and to the final consumer for a profit! Still, you need to know what your consumer is ultimately paying for your product as this affects
your competitiveness. Based on this knowledge, you may decide to reduce the number of intermediaries in your distribution channel, thereby reducing your final selling price and ensuring greater competitiveness for your product. Let's move on to the next step in the export pricing process. Step 6: From an export price to a final selling price Once you have calculated an export price to quote to your customer, you are not yet finished. Your customer is likely to be only the first step in distribution channel in the target market. Your customer may be an import agent, an importing distributor, a wholesaler, or a retailer. These intermediaries - and some countries have long chains of intermediaries - will all be adding to the cost of your product in terms of their handling charges, distribution costs and commissions and mark-ups. Your export price that you sell to the importer and the final selling price that the end-consumer pays in that particular marketplace may be significantly different. You also need to bear in mind that there are likely to be costs added to your export price that have nothing to do with the intermediaries such as sales tax, excise tax and other regulatory charges. In your pricing analysis you will considered all of these additional charges and intermediary costs and will have a good idea what to estimate for these services and taxes. You then need to add these additional costs to your export price to determine a final selling price. It is this final selling price that you will need to compare with similar products to your own (namely those of your competitors). How do you compare? Are you cheaper; the same price; or more expensive? How does your product attributes and quality compare with the final selling price? Can you compete? Do not forget to take the additional costs we have highlighted into consideration. Additional costs to consider Taxes and regulatory costs Apart from customs duties levied on goods coming into a country, additional costs (e.g. fees for import certificates and for other administrative processing) purchasing or excise taxes which apply to various categories of goods, value-added or turnover taxes which apply as a product goes through a channel of distribution, as well as retail sales taxes, all of which serve to increase the final price of the goods. The cost of inflation In addition the effect of inflation on the cost of the goods should not be ignored. The selling price should always be related to the cost of the goods sold and the cost of replacing the items concerned. By selling goods in foreign markets below their replacement cost, you may be better off not exporting at all. Inflation becomes an important consideration when payment is delayed by several months or where credit extended over a long-term contract. The cost of exchange rate movements Many South African companies have experienced heavy financial losses because of adverse movements in exchange rates. Of particular concern to the exporter should be those areas of exchange risk that they cannot cover forward. For example, where freight rates are given in US dollars, the exporter needs to ensure that they are covered if the rand weakens. Worse still, should the rand strengthen significantly between the time of accepting an order and the actual date of shipment, the exporter could be providing the customer with an unexpected discount. For these reasons, it is important that every exporter have some knowledge of exchange rate trends and can adjust the rates used for currency conversions accordingly. (This additional cost, however, may have a detrimental effect on price competitiveness.) An easy form of protection would be to quote all export prices in South African rands. However, from a marketing point of view, this would be unwise. Importers usually prefer all quotes to be in their own currency or US dollars. Firstly, they can easily compare the offers of various foreign and national suppliers and, secondly, they may be equally concerned about the exchange risk, particularly if
their own currency is susceptible to devaluation or appreciation. Another form of protection is to stipulate in the export quotation that the quoted price is subject to alteration depending on exchange rate fluctuations. This solution, however, is seldom acceptable to the buyer. The cost of channel length The length of your channel of distribution can have a considerable impact on the final export price. Apart from the various intermediaries who will be marking up the product, a lack of standardisation in respect of such mark-ups makes it very difficult to assess their actual contribution to the final price. Often, intermediaries will use higher wholesale and retail margins for foreign goods than for similar domestic goods. Step 7: Reviewing the pricing process You are likely to have to do it all again We have already said that it is unlikely that you will arrive at a competitive export price (or final selling price) the first time round. You may need to review your costs and find ways of cutting them. You may need to change your pricing strategy or reduce your channel length to reduce the mark-ups of intermediaries. You may need to review or redesign your product to reduce its production costs. Click here to view cost reduction strategies and marginal costing. Costing and price-setting is a recurring process You may also find that you have to go through this process several times. You will almost always have to review your costs for each new client. For this reason you should become familiar with the costing and price-setting process. Do not hesitate to review your costs and try and keep them as recent as possible - don't forget the prices of your inputs and transportation costs are changing daily (as do exchange rates, inflation, duties, etc.). Costing and price setting should become (and will become) an integral part of your export process. We even suggest that you review your costs and prices in later step in the 21-step export process. Cost reduction strategies There may be times in your exporting endeavours where you find that, although there is an attractive market open to you, you cannot compete in this foreign marketplace because of the low prices you encounter (in fact, this is likely to be a common occurrence). The question arises as to what you should do. We have already discussed the possibility of adopting a marginal costing strategy which could have a major impact on your export price, but which carries with it the danger of being accused of dumping. Being accused of dumping would not only ruin your reputation but could turn the market against you and result in you being driven from the marketplace. So what other options are open to you? We discuss a number of strategic approaches below that you could adopt to overcome the problem of extremely low prices in foreign markets: • Eliminate costly financial features or even lower the product quality in the case of products destined for less sophisticated markets, e.g. those intended for developing countries. For example, labour-saving features in a product have little value where labour is plentiful and where little importance is attached to timesaving. Similarly, the ability for machinery to hold close tolerances is of no value if people are not quality-conscious. • You may also want to consider modifying a product so that it will qualify for a different or lower rate of import duty. • Consider shipping your goods in knocked-down form, as products may be charged lower duties if they imported in knocked-down form and then re-assembled in the country of destination. • Aim at shortening your channels of distribution, although this may often difficult to do. The Internet, for example, is increasingly being used by manufacturers to sell direct to end-users. • Arrange to have goods assembled in a free trade zone (FTZ) in the importing country.
• An investment in an off-shore production facility can be made to remain competitive in the foreign market. FTZs as a way of lowering costs A free trade zone -FTZ (or export processing zone - EPZ) is an area in which imported goods can be stored or processed without import duties being payable until such time as the goods leave the zone and enter the foreign market. Processing can include repackaging, cleaning, grading, assembling and light manufacturing. There are currently more than 300 FTZs in the world today. A bonded warehouse can also serve this purpose Having products assembled in an FTZ, the exporter can lower costs in a variety of ways: • Tariffs may be lower if duties are assessed at a lower rate for unassembled goods than for finished products • If labour costs are lower in the importing country, substantial savings can be realised in the final product cost • Ocean freight rates are governed by weight and volume unassembled goods consequently may qualify for lower freight rates • If local content (e.g. packaging or component parts) can be used in the final assembly, import tariffs may be further reduced Marginal cost pricing Fixed, variable and total costs Manufacturing costs, apart from being split into direct and indirect costs, can also be divided into fixed costs and variable costs. Fixed and variable costs are added together to calculate total costs in the following formula: • Total costs = Fixed costs + variable costs Fixed costs are those costs, such as factory rental, capital eqipment repayments and permanent staff salaries, which at least in the short or medium term, remain unchanged regardless of the level of output achieved. Variable costs are those costs, such as raw material purchases, wages and electricity, which vary directly according to the level of output achieved. Breakeven point Once a company has achieved an output that generates sufficient revenue (or income from sales) to cover both the firm's fixed and variable costs, it will have reached a breakeven point. At this point, total revenue is equal to total costs. Above breakeven, the only additional costs incurred should be variable costs; therefore, any price per unit that exceeds the variable costs, will yield a profit. Marginal costing Marginal-cost pricing involves basing the price on the variable costs of producing a product, not on the total costs (i.e fixed and variable costs). Obviously, the company cannot, within its local markets, sell some of its stock at normal prices and the rest at marginal-cost prices. All prices would have to be reduced with the result that a greater volume of output would be required to reach a breakeven point. The exporter can, however, take advantage of cost pricing in certain export markets becuase it would be difficult for the import to directly compare the export price with the domestic selling price - but the target markets should be sufficiently divorced from the company's main markets to prevent price levels in the local markets being affected. Marginal-cost pricing should only be considered when the profitable use of resources, such as an alternative market which may offer high price levels, or a more profitable product that could be manufactured at the same plant, can no longer be identified. It has obvious attractions for markets where lower income levels dictate lower prices or where foreign competition is such that a company cannot compete at normal price levels. However, it should relate only to shortterm business aimed at disposing of temporary surpluses following the construction of new plant or a seasonal fall-off in other orders. An example of marginal cost pricing To illustrate the concept of marginal costing, let us use an example:
Assume there is a local company that produces backpacks. The firm has the capacity to produce 60 000 backpacks per year given the size of its factory and the number of machines it has available (these are large capital-intensive machines that cannot easily be increased in number without incurring long-term financing costs). The comapny, irrespective of whether it achieves any sales whatsoever has fixed costs amounting to R700 000 per year (including management and permanent staff salaries, factory rent, insurance costs and capital equipment repayments). The variable cost of producing a single backpack for the domestic market, is R42 per unit. This covers materials, wages, electricity, yarns, dyes, etc. The variable cost for producing a single backpack for the export market is R59 per unit. The extra R17 covers international transportation, additional insurance, additional labelling, special packaging, import duties and the import agent's commissions. Currently the firm sells 45 000 units domestically. The breakeven cost per unit of these domestic sales are therefore: Breakeven cost per unit = Total costs / total number of unit solds = (Fixed costs + variable costs) / total number of unit solds = (R700 000 + (R42 x 45 000 units)) / 45 000 = R2 590 000 / 45 000 units sold = R57.56 per unit If this company now generates an export order for 10 000 units per annum, the breakeven cost of this export order will be calculated as follows: Breakeven cost per unit = Total costs / total number of unit solds = (Fixed costs + (variable costs for domestic sales + variable costs for export sales)) / total number of unit solds = (R700 000 + ((R42 x 45 000 units) + (R59 x 10 000 units))) / 55 000 = (R700 000 + R1 890 000 + R590 000) / 55 000 = R3 180 000 / 55 000 = R57.82 per unit Using marginal costing methods, however, the firm would ignore fixed costs for its export sales and would calculate the per unit price based on variable costs alone. This would be done as follows: Breakeven cost per unit (Marginal costing method) = Total variable costs / total number of units sold = (Variable costs for domestic sales + variable costs for export sales) / total number of units sold = ((R42 x 45 000 units) + (R59 x R10 000)) / 55 000 units = (R1 890 000 + R590 000) / 55 000 = R2 480 000 / 55 000 = R45.09 Clearly, R45.09 per unit is a more competitive (breakeven) price than R57.82 and the marginal costing method thus allows many exporters to enter and compete in export markets which they otherwise would not be able to do because of selling prices that are simply too high. Follow this link for an EXAMPLE Marginal costing is generally not viewed favourably Apart from the obvious disadvantage of lower profit generation, marginal-cost pricing may also be viewed by the government of the importing country as dumping. This is likely to be the case where the country concerned has competing industries which require protection from unfair competition. A company could then face the imposition of high countervailing duties by the government, in order to correct the imbalance in prices. Dumping is the sale of a product in a foreign market at a price lower than that at which the same product is being sold in the exporting country's domestic market. From a national point of view, marginal-cost pricing is seen as contrary to a country's overall export objectives because a commitment to exports is likely to be lacking. As soon as an opportunity to increase sales volumes in the domestic market arises, the exporting company is likely to shift its activities from the
foreign market to the local market. This action gives rise to mistrust amongst foreign buyers of all other suppliers residing in the same country as being totally unreliable. Export promotion Once you have (a) developed or adapted your product(s) to meet the requirements of the foreign consumer, (b) gone through a careful costing exercise to ensure that your product is competitively priced (given your planned pricing strategy), and you've figured out how to distribute the product both to, and within, the foreign market, the next challenge you face is to inform your prospective customers of the product's availability and its value. This is known as the "promotion" element of the marketing mix (the 4Ps). Today, promotion is also referred to as marketing communications. Developing an export promotion strategy really only involves three steps. These are: • Determining the most appropriate mix of advertising, sales promotion, direct marketing, internet marketing, publicity and personal selling for each foreign market • Determining the extent of standardisation of your export promotion effort • Deciding on the core message(s) you will use to promote your product and company Preparing a promotion strategy statement for your export plan These above-mentioned promotion issues we discuss in more detail in subsequent sections. Once you have worked through these various promotional issues, you should be able to prepare a statement outling your export promotion strategy. This statement should: • Identify the mix of promotional elements you plan to use to promote you firm abroad, explain why you have made this choice • Indicate the extent of standardisation you plan to use within your promotion strategy • Highlight a overarching core message that you plan to carry across to your targey market through your promotional effort • Explain how this promotion strategy will help your firm achieve its export objectives. Step 1: Deciding on a suitable mix of promotional elements In this first step of setting your export promotion strategy, you will need to decide on which of promotional elements you will use to promote your firm abroad. There are essentially six elements to choose between. They are: • Advertising • Sales promotion (including participation in trade fairs) • Direct marketing, • Internet marketing • Publicity (or PR) • Personal selling Knowing the difference In order to select an appropriate mix of these six elements, you need to understand what each element entails. To this end, we discuss each of these elements in greater detail in order for you to understand (a) what is involved in each of these elements of promotion, and (b) to enable you to decide whether this element is suitable for your company. Choosing a promotional mix It is unlikely that you will use only one means of promoting your firm in the foreign marketplace. Instead, you are likely to use a 'mix' of these six elements. For example, you may choose to place an advertisement in a trade magazine in the target market, which you backup with an e-mail marketing campaign. You may also decide to make use of trade fairs (a form of sales promotion) to promote your company and you may also use personal selling by calling on your top twenty potential customers. But before you can decide on which elements to choose, you
need to know what they involve, so let us move on to discuss each of these elements. Advertising Introduction Let us begin by defining advertising. Advertising is commonly defined as the paidfor promotion of goods, services and companies by an identified sponsor in the mass media (such as television, radio, magazines, newspapers, the Internet, etc.). In this instance, your company is the 'identified sponsor' - you will be paying for the advert that will be placed in your choice of mass media to promote your export products. Most of us are familiar with the concept of advertising as we encounter it everywhere we go; whether on TV, on radio, in newspapers, in magazines, on the Internet, or on billboards, advertising is the most common form of marketing communications one will encounter in business. International advertising, however, faces more problems than any other aspect of international communications because of the differences between nations in the areas of culture, language, government restrictions, tastes and attitudes of the local population, agency availability, and the availability of certain media, such as television or the Internet. What advertising media are there? The most common categories of advertising media are outlined in the table below. We have also provided some comments on the suitability of each medium for use by exporters. Broadcast media Television advertising • Very expensive • Better for mass consumer goods • Very visual and impactful medium • Not really feasible for smaller exporters • Highly specialised/targeted shows might be a possible consideration Radio advertising • Also quite expensive • Better for mass consumer goods • Listeners don't see the product/service; they have to imagine it • Unlikely to be used by smaller exporters • Highly specialised/targeted radio shows might be a possible consideration • Some radio stations have a regional or city focus which may be worth considering if appropriate Print media Newspapers • Newspaper advertising is quite expensive • Short lifespan and limited space • Can choose between national and city papers to control reach Magazines • Can be expensive; but is generally within the reach of smaller exporters • Although there are national magazines (which are very expensive), there are also very focused sectoral and industry-related magazines which tend to be more affordable • Targeted magazine advertising is a realistic option for most exporters • You need to consider the audience and readership of the magazine to decide if it is suitable for you • Generally has a slightly longer life than newspaper advertising - reders may come back to the magazine several times and it may be read by several different people Directory advertising • Most countries have many different directories (such as the Yellow Pages and Brabys in SA) • As many consumers and businesses make use of directories to find suppliers, it may be worthwhile to submit your company details for inclusion in a directory so that you will come into consideration when they are looking for suppliers. • Usually not very expensive, but is unlikely to attract many customers • Some marketers consider directory advertising a waste of money, as the
return is too little • You may want to take additional advertising in the directory (e.g. a full page ad in the section that applies to your firm's activities), but this can be very expensive Outdoor advertising Billboard advertising • Usually quite expensive • Very shotgun approach, but longish life • Not likely to be used by smaller exporters • Fine for building brand awareness for larger firms • Not much space to carry accross your message Flyer handouts • Not very expensive, but too narrow in its impact for exporters who need to reach a wider audience • Only really suitable for consumer goods (not used for industrial products) • Little control over the delivery of the flyers • Comes across as somewhat 'cheap' Bus and car (transit) advertising • Similar to billboard advertising • On the expensive side • Suited to consumer, rather than • Limited message • More mobile • Best used for brand-building • Not likely to be used by smaller exporters Posters • Similar in some respects to billboards, transit advertising and flyers (just smaller) • Much cheaper and therefore more affordable • Probably better for consumer than industrial goods • Often used in support of sales promotion activities such as trade fairs and in-store promotions • Not a very big reach - limied readership • May be used to a limited extent by exporters Skywriting • Expensive • Very short life • Has to be used in conjunction with a major event such as World Cup event • Not likely to be used by exporters Other advertising media In-store advertising • Obviously aimed at retailers and consumers and not the industrial market • Might be worth considering if you are trying to break into retail outlets • Would need to negotiate with retailer regarding cost • Retailer may be reluctant to give away advertising sapce for a relatively unknown product • Limited use for exporters aiming at the reatil market Promotional gifts • Not very expensive • Limited imact • Fine to backup your sales promotion or personal selling efforts • A good promotional gift has a long 'in mind' life • Limited reach - very personal • Can be used by exporters to promote themselves to selected buyers • Gift should not be construed as a bribe Movie advertising • Very expensive to produce advert • More popular amongst younger generation • Aimed at consumer goods, not industrial/business products • Unlikely to be used by exporters much • Good for brand buidling of selected products Product placements • This is when you negotiate to have your product used in a move or television programme • High cost • Your product would need to be unique for it to be considered (e.g. iPod
music, Masserati car, Apple computer, etc.) • Unlikely to be a viable channel for most export products In-flight advertising • Might be used onboard aricraft (e.g. the inflight magazine) or at airports (much like billboards) • Quite expensive • Captured audience - likely to spend time reading your ad if it is relevant to them • More suitable for consumer than industrial products • Worth considering, depending on your target audience Internet advertising • Affordable and within reach of most exporters • Similar in nature to a magazine advertising • Can carry across more information than in a magazine and more visual information • Can be made interactive • Advertising can be very targeted reach specific users • Company website an absolute must • Internet advertising must be considered by all exporters (even if they later choose not to use it) • Discussed in more depth under Internet marketing Which advertising media should I use? This is not a question that one can answer will universal clarity; the answer will vary from country to country and will depend on your firm and the products your are promoting. In making your decision, you should bear the following in mind: • Because advertising involves mass media, the impact of advertising has more of a "shot-gun" (i.e. broad) than a "rifle" (i.e. narrow) effect. However, some advertising media (such as trade, industry or specialist magazines and certain types of Internet advertising) are more focused than others and are worth considering to reach specific target audiences. • Certain types of mass media (such as television and radio) are better suited to promoting consumer products, while others (such as trade magazines) are better suited to promoting industrial or business products. • Generally speaking advertising is relatively expensive and is too broad in its impact to be suitable for most smaller exporters. For this reason, advertising is not a popular means of promoting products in foreign markets. • In some cases - such as with industry or specialist magazines, certain types of Internet advertising and in the case of very focused/specialised television or radio shows - advertising may be worth considering because it reaches the target audience you are after. • Putting together an appropriate advertising message that has meaning within the culture and language of the target country is often very difficult and can seldom be undertaken from the home base. It is generally the case that you will have to make use of a local (and often expensive) advertising agency in the target country to run with the advertisement. Working with foreign advertising agencies to ensure that they carry across the message properly, is not easy and is fraught with problems. • There may be various regulations that restriction on the type and nature of the advertising that you are allowed to do. You need to make sure that you keep within the law. • There are many examples of how adverts translate badly when used in other languages. Make sure you get real and confirmed feedback from the marketplace that your ad works. The advertising message Legal restrictions and social constraints that vary from country to country quite often hamper freedom concerning the advertising message.In the case of the local export community, standardised advertising copy is commonly generated in South Africa and then translated for use in other countries, a practice that, if incorrectly handled, can negate the entire value of an advertising campaign. An
apparently correctly translated message may become either incomprehensible or, at worst, make both the manufacturer and the product look ridiculous. A classic example of such an error was the translation of the English proverb, "Out of sight, out of mind" which, when translated into a foreign language, read "Invisible things are insane!" To avoid the pitfalls of incorrect translation, the following rules should be adhered to: • Translate thoughts and ideas, do not provide a literal translation of words • Copy should be designed and written with translation in mind. • Unusual idiomatic expressions and slang should be avoided. • A native, professional should be used • The same language spoken in a number of different countries may have differences in its use - Spanish spoken in Colombia, for example, differs from Spanish spoken in neighbouring Venezuela • Local nationals who have experience in the relevant product area, e.g. agents or distributors, should always check the translation • The final proof should be re-checked by both the translator and the agents/distributors Advertising media Most advertising in the world is done through national media. However, where standardised advertising is planned, the exporter may choose to use international media. i.e. publications which receive coverage in a number of different countries, e.g. consumer magazines such as Reader's Digest, Time or Business Week, or various trade and technical magazines. Ultimately, the exporter must select the media which are most likely to reach the target market cost-effectively. In achieving this objective, the following would normally be considered: Suitable media may either be restricted in use or unavailable in the target market. Television advertising is often state-controlled and advertising time is strictly limited both in terms of the number of minutes and in terms of the number of minutes per product per annum. • The advertising of certain products, such as tobacco products or alcoholic beverages may be forbidden or restricted in terms of the law. • In many developing countries, it is difficult to acquire information on the circulation of publications or the type of people that they attract. • Where literacy levels are low, radio advertising, for example, may be more appropriate than press advertising. • Many countries tax advertising while other countries charge a special tax on imported advertising material. The effect this is likely to have on the marketing budget should be borne in mind. • Where the target country is multilingual, such as in Switzerland, regional media which specialise in the language spoken in that region, should be considered. • The quality of reproduction provided by some media may be unacceptable and this aspect should be investigated prior to a final choice being made. Advertising agencies In choosing a suitable advertising agency, the following should be taken into account: • The extent of market coverage of the agency. Not all markets that you may be interested in may be covered by the agency in question. • The quality of service offered. This differs from market to market and may even differ between branches of the same agency. • The extent, in financial terms, of the business offered to the agency. Major international agencies and certain foreign agencies may not handle small advertising campaigns • The need for international co-ordination. Where the advertising budget is considerable and a standardised campaign is planned, good co-ordination and control, usually achieved through a single international agency, may be required. • Larger concerns with operating bases in other countries may prefer to leave
agency selection to a local subsidiary. This could also be the case in respect of joint venture arrangements or where advertising is done in conjunction with a local distributor. Sales promotion Introduction In the world of marketing communications, advertising is known as "above-the-line" marketing, while all the other forms of marketing are known as "below-the-line" marketing, and include all activities that encourage consumer purchases and improve retailer or intermediary effectiveness and co-operation. This includes sales promotion. Sales promotion covers activities such as in-store demonstrations, exhibitions, trade fairs, samples, coupons, sponsorship of special events such as sports activities, concerts, films, catalogues, discount offers, and so on. Sales promotion specifically excludes advertising, personal selling and public relations. Sales promotion can be fraught with difficulty in foreign markets As with advertising, international sales promotion is beset with legal pitfalls. For example, in Germany, discounts are forbidden if they constitute a real financial incentive to buy. Samples may not be larger than is absolutely necessary to provide an adequate trial for the product, and a promotion may not normally require that the purchaser to send in labels or packet tops. It is essential therefore that you always check each planned promotion against local regulations. In addition, promotions that require the support of the retailer to process coupons, set up display material, etc., will always be more difficult to secure in foreign markets, often because of the lack of space and handling facilities. Sales promotion may be a good alternative to advertising In markets where media limitations make it difficult to reach the consumer, as is the case in many developing countries, or where advertising is very expensive, as in many developed countries, the percentage of your promotional budget allocated to sales promotions may have to be increased. In certain parts of Latin America, for example, a portion of the advertising sales budget for the Coca Cola company is spent on carnival trucks which travel to outlying villages to promote the product. When the truck stops in a village, it may show a film or provide some other form of entertainment for which the admission requirement is an unopened bottle of Coke purchased from the local retailer. On presentation, the unopened bottle is exchanged for a cold bottle plus a coupon for another bottle. This promotion stimulates sales and encourages local retailers to stock the product with the result that nearly 100 per cent coverage of the product by retailers in the village is achieved. In other cases, village stores may be given free samples or have the exterior of their stores. Sales promotion alternatives There are many ways to promote sales and we briefly discuss these below (they have beed divided into business-orientated and consumer-orientated promotions): • Business-orientated promotions • Promotional allowances - With space on retailers' shelves at a premium, a promotional allowance is often paid by a manufacturer or exporter to a retailer to acquire shelf or display space where you can display your products. • Contests - Encourage sales by initiating a competition that allows the top salesperons(s) in a country or region to win an attractive prize, such as a luxury holiday for example, for generating the most sales in a particular period. Be sure to obtain the permission of their management before intorducing such a contest. • Cooperative advertising - This occurs when you, as the manufacturer, are prepared to share the cost of any advertising with your foreign buyer. You may agree to pay an advertising allowance that is based on a percentage of the retailer's order. Although this allowance is to be used for advertising by your intermediary, it remains a sales promotion tool, as you are essentially striving to promote sales through this means. • Sales training - Be prepared to spend money to train the sales staff of your foreign representatives. Not only will this generate increased sales, but it
strengthens the relationship between your two organisations. • Sales aids and brochures - This is another area you should not fall short in. Make sure that you provide your foreign representatives with all the sales aids (such as CD/DVDs, Powerpoint presentations, posters, etc.) and product brochures. This will help them sell your products and should encourage buy-in from the foreign sales staff. If you give them nothing, be prepared for poor sales. • Demonstration models - With some industrial goods, it is imperative that you provide the foreign sales staff with demonstration models. If it is a very expensive item, provide at least one model that they can keep at their head office and take prospective clients to show. If you can afford more, supply more. Demonstration models are a good way to encourage sales. • Slotting fees - A slotting fee may need to be paid to get your product into the sales catalogues of wholesalers or large retail chains. By ensuring that your product is in the catalogue, you stand a good chance that down-the-line retailers or branches will buy your products. • Discounts and rebates - Discounts and rebates offered to your representatives and their customers to stock your product(s), is another means of promoting sales. • Incentive programmes - These are also often used to incentivise sales staff. You pay them an 'additional' commission for sales achieved. Bear in mind that you will need to obtain the permission of the management of your foreign representative; you cannot just introduce such incentives without their permission. Targets should be achievable, or the sales staff will loose interest and you may even loose sales this way. • Consumer-orientated promotions • Competitions and sweepstakes - You may want to run a competition or sweepstake or contest to encourage consumers to buy your products. Make sure of the legality of such activities, as they make be considered to be a form of gambling. These types of promotions, if well organised, are very popular and effective in growing sales. • Sampling - Giving away small samples (also called 'give-aways') to encourage consumers to try your product and hopeful buy more of it, is a good sales promotion technique, if a little expensive. Not all products are suitable for sampling. • Loyalty programmes - Loyalty programmes involve incentives that reward repeat purchases. For example, if you buy ten meals, the 11th meal is free. • Tie-in promotions - These involve the selling of two different brands (either from the same company or from different companies) as a single item. For example, if you buy Colgate toothpaste at its normal (or slightly higher) price, you will receive an OralB toothbrush with the toohtpaste. Usually, the toothbrush and toothpaste are packaged together as a single item. • Price incentives - A price incentive is a short-term price reduction (such as a sale, introductory offer or special) to encourage customers to buy the product. This form of sales promotion is often used where brand loyalty is low and where price incentives are necessary to encourage repeat purchases. • Coupons - These are a form of price incentive and are small cut-outs or tear-outs or inserts that are made available to customers in magazines, in stores and through other channels. The customer takes (tears out) the coupon and visits any retailer that stocks the product and can then redeem the coupon for the product usually at a discount (e.g. 10 cents off). Coupons are popular in certain parts of the world. • Premiums - Another form of price incentive, premiums are a like a small gift you can get if you sign up for a subscription or buy a product. The premium 'item' may be bundled with the main item of purchase. • Bonus pack - An example of this type of sales promotion method is is where you receive a 400ml can when you buy a standard 330ml can. The can usually is slightly bigger highlighting the fact that you are getting a free 'bonus' when you buy this product.
In-store promotions In terms of international marketing, an in-store promotion (which is different from in-store advertising that we discussed under 'advertising') is an elaborate promotion of consumer goods normally organised in a specific country or group of countries. The aim of a company choosing to participate in such a promotion would usually be continuity of supply of the product over a period of time, and achievement of this goal would need to be evaluated at regular intervals. In-store promotions are most successful when the products involved are already being purchased and sold by the store and are not simply purchased specifically for the event. International trade fairs International trade fairs and exhibitions are an excellent and highly recommend means of promoting your products in the new foreign marketplace. They should form an integral part of any company's overall export marketing plan. Indeed, they are so important, that we will deal with international trade fairs under a separate heading. Click here to learn more about trade fairs and exhibitions. Trade fairs and exhibitions Introduction Trade fairs are an excellent way of researching and entering foreign markets and should form a core part part of any exporting firm's export marketing strategy. A trade fair represents a concentrated exhibition in space and time of the products and services of hundreds, even thousands, of producers. They are generally held annually and range from highly specialised events focusing on a single industry, such as the Futurex exhibition that is held in South Africa each year, to very general fairs such as our own Rand Easter Show. Trade fairs provide an opportunity for companies to introduce their firms and products to the foreign marketplace and to check out the competition. The benefit of trade fairs is that it all happens under one roof, thereby saving you time and money in reaching prospective customers. Good trade fairs will attract many buyers and sellers together at one time and at one place and they therefore represent a concentrated market in which you can gather information, learn about the foreign marketplace and trends in the marketplace, get customer feedback on your export products, identify buyers and/or representatives, learn about the competition and their products and even take orders. In order to be successful with your trade fair, however, it is essential that you plan your exhibition properly. For this reason it is important to: 1. Understand the different types of trade fairs 2. Formulate your objectives for participating in a trade fair 3. Select a trade fair that will meet your objectives 4. Prepare a budget for your trade fair 5. Book the stand 6. Organise to participate in the trade fair 7. Actually participate in the trade fair 8. Ensure that you follow-up on your trade fair participation afterwards We now move on to discuss each of these steps in more detail. 1. Types of trade fairs and exhibitions Introduction According to the Export Marketing Handbook, trade fairs can be divided into several different types. These inlcude: • General fairs or specialised industry fairs • National, regional or international fairs • Fairs open either to the trade or general public only • Special event fairs or permanent exhibitions Deciding on the type of trade fair you want to participate in In deciding on a particular trade fair, you need to clarify which one of these types of trade fairs is the most suitable for your company and product. If you have a consumer-orientated product and you want to get customer feedback on your
product(s), then perhaps a general trade fair that is open to the public would be the best for you (like our Rand Easter Show or the Pretoria Show). On the other hand, if you produce a highly specialised piece of industrial equipment, then a specialised industry trade fair is probably better suited to your needs. On the other hand, if you are want to reach potential customers in more than one country, then an international trade fair is probably best. Understanding the different types of trade fairs will go a long way in helping you formulate your trade fair objectives better, and will also help you select the best trade fair to participate in, in order to meet your needs. With the different types of trade fairs in mind, you can now move on to formulate and document your trade fair objectives. 2. Formulating your trade fair objectives Introduction Before selecting a fair in which to participate, the objectives for doing so need to be defined. These we have already briefly mentioned and may include: • Gathering information about the marketplace that will help you with your export marketing strategy • Getting customer feedback on the products you have to market • Identifying potential buyers and/or representatives • Learning more about the competition and the products they have to offer • Taking orders and/or to selling your products Linking your trade fair objectives to your export and research objectives, and marketing strategies It is obviously important that your trade fair objectives tie in with your overall exporting objectives, as well as with your research objectives and planned export marketing strategies. After all, you will be using the trade fair to gather market information and this information must support your other information gathering objectives. You may, for example, find that there is some pertinent information that you are missing and the trade fair will provide an opportunity to focus on getting the missing information. Similarly, you will be using the trade fair to market your firm and your products. It is therefore essential that your efforts at the trade fair are closely linked to your export marketing strategy. If, for example, you intend to make use of an import agency to enter the market, then one of your trade fair objective may be to identify suitable agents. On the other hand, if you want to ensure that your product meets customers' needs, then you may want to ask as many potential customers what they think of your product(s). Once you have set your trade fair objectives, the next step is to identify a suitable trade fair to participate in - one that will meet most of your objectives. 3. Selecting a suitable trade fair and deciding to participate Introduction There are thousands upon thousands of trade fairs that you can choose from. Indeed, your challenge will be to find a trade fair that meets your needs and that will satisfy your export objectives. At least you know which country/market to focus on - this you will have identified in your export plan. But even within one country or market, there can be many different exhibitions to choose from. What is more, the best trade fair for your needs may not even take place in your target country; there may be a better-suited international trade fair that takes place in anohter country but to which the major players around the world come because of the impoortance of the fair/exhibition - consider CeBit (the world's largets computer fair which take place in Hamburg each year). Thus the challenge you face is to decide on which one to choose? Factors affecting your choice of trade fair Your choice of fair may be influenced by: • The availability of suitable fairs in your target country/market • Your company circumstances and trade fair objectives, which need to fit in
with the theme and type of trade fair • The type of products likely to be on display at the trade fair (for example, it is not good displaying industrial products if it is a consumer fair) • Whether the type of customer group you are aiming at is the type of customer that has attended the trade fair in the past (this information will generally be available from the trade fair organiser) • The length of time the fair has been in existence - new fairs usually only attract a small audience • The standing of past and present exhibitors • The general efficiency of the trade fair organiser Where are you likely to get information about trade fairs? Perhaps the best place to get information about trade fairs today is to search for the information on the Internet - see searching on the Internet. In this regard, we have provided you with a list of websites you can use as a springboard for finding trade fair information - click here. Besides for the Internet, you may want to try the following sources of information: • Your overseas trade or diplomatic representative at the South African missions abroad will usually have information about the trade fairs available in their respective countries of representation - click here for a list of South African missions and trade representatives. • The various missions and trade representatives of foreign countries in South Africa are also likely to have information about trade fairs in their respective home countries - click here for a list of foreign missions and trade offices located in South Africa. • Specialist international or country-specific trade magazines will often carry information about trade fairs related to their industry sector or country of operation. • The various chambers of commerce and industry associations in your target country/market may also make available information about trade fairs that are taking place in their area of operation (either geographically in the case of chambers of commerce, or per industry sector in the case of trade associations). It may be necessary to use the Internet to identify such overseas chambers and trade associations and then you can contact them by e-mail to learn if there are any trade fairs that they are aware of that would be suitable for your firm to participate in. • The bilateral chambers of commerce that facilitate trade between South African and the country they each represent is another excellent source of trade information. To obtain a list of bilateral chambers of commerce, click here. • The DTI regularly hosts national pavilions at a few selected international trade fairs throughout the world. Being part of a national pavilion may generate your firm more business and publicity than you could do yourself and the DTI also carries many of the costs associated with such pavilions. To obtain a list of national pavilions that the DTI will be participating in this year, click here. Contact the trade fair organisers You need to be certain that the trade fair you have identified is sutiable for your firm and its products. To this end, it is important that you contact the trade fair and ask them for information about the trade fair they will be organising. Any reputable trade fair organiser will be happy to send the information to you (unless they already have all the information on the Internet, which only requires you to visit their website to get the information you need). If this information does not answer your question(s), then e-mail the organizers and ask them specifically what you want to know. If the organisers refuse to answer you, then perhaps you need to think twice about taking part! The sort of information you want to get from them is the following: • What is the main purpose of the trade fair? • Who is the primary audience of the trade fair? • How long has the trade fair been in existence?
• How many participants took part in the trade fair over the past three years? • How visitors attended the trade fair over the past three years? • What is the minimum stand size that you may book? • What is the cost of stands at the fair (how do prices differ according to position)? • What is included in the price (e.g. carpeting, stand shell, security, etc.)? • What about telephone connectivity, Internet access, electricity (is this available, and is it included in the stand price or what is the cost thereof)? • What about publicity (is an entry in the fair guide extra and what do ads in the guide cost)? • Are you allowed to sell at the fair (many fairs do not permit participants to sell their goods on the stand)? Deciding to participate Once you have identified a suitable trade fair to participate in, your next real step is to make a conscious decision to participate in the fair. This may seem a minor step, but in fact it is perhaps the most important step to take. By making a conscious decision to participate in a trade fair, you are adding importance to all of the other steps that will follow. In the next step, you will prepare a trade fair budget - some individuals may say that you can only make the decision to participate in a trade fair once you have set your budget. There is a ring of truth to this and whether you wish to first prepare your budget and then decide whether or not to participate, either way is fine. 4. Preparing a trade fair budget Introduction Trade fairs are not cheap. Participation in foreign trade fairs costs a lot of money. International trade fairs are usually much more expensive than national or regional fairs and the better known the trade fair, the more expensive it will be. Your budget needs to be fairly detailed as your budget will also underpin some of the operational activities you will need to perform (such as printing business cards and arranging transportation for your products to the fair). In the early stages of preparing your budget, you may not know all of the costs, but estimate them as far as possible and revisit the budget regularly to update the outstanding costs. Preparing for a trade fair is also a time consuming activity and for this reason you need to do the budgeting (and planning) well in advance. Likely cost items The likely expenses you will incur are the following: • Renting a stand usually on a space basis • Electricity and water charges, including any required fittings • Designing the stand (if you plan to have a professionally designed stand) • Building the stand (you may be able to do this yourself, but your may also require help) • Renting or buying display racks and other stand furniture • Telephone installation and call charges (perhaps you will make use of a cell phone instead) • Internet access and usage charges (if required) • Forwarding and insurance costs to get your samples and materials to the fair (this could be very high if you are taking heavy industrial machinery with you) • Delivery of the display goods from the airport or harbour to the trade fair • Customs clearing charges • Cleaning of the stand (especially after the fair) - this may be a required fee • Dismantling of the stand after the fair • Security services - this may be fixed or optional fee • Arranging a reception or cocktail during the course of the event • Advertising and publicity charges • Printing costs of brochures, catalogues, flyers, posters and/or business
cards (or transportation costs if you are taking these materials with you) • Any additional staff costs, if you plan to hire an assistant to help with the stand or perhaps with interpreting • Any additional market research costs • The travel costs associated with attending the trade fair, including all follow-up visits after the fair has ended 5. Booking the stand Introduction Once you have set your objectives, decided on which trade fair to participate in, decided to participate, and have prepared a budget, your next important step is to actually book the stand. You need to do this quite early on to ensure that you get the best space possible and perhaps to benefit from any discounts the organisers may be offering. The longer you take, the more risk there may be in either not getting space at all, or getting such badly located space, that it would not be worth participating in the first place. Booking the stand also represents further commitment on your part and adds emphasis to the steps that follow. Stand location Selecting and booking a good location is the key to the success of your participation. Like with any retail operation, it is all about location, location, location! The earlier you book your stand, the better chance you have to get a good spot. Be firm in your negotiations with the organisers and demand to get a good position. They may want to hold you at bay because they hope to get a key client to take the best spot. Pressure them as much as possible for the sport you want and do not allow them to change your mind at later stage even if they offer you a discount. Make sure that the location you have chosen is: • In a busy area - traffic is essential to success at trade fairs • In an area that most visitors will need to pass by to get to other key parts of the fair • Visible from various areas in the fair - allowing visitors to home in from different parts of the hall • Spacious enough for visitors to move by freely - a congested spot may cause visitors to choose another route or to be so focused on getting through that they miss your stand • Not overpowered by a major participant - this may result in visitors rushing part your stand to get to the main exhibitor In terms of your stand and its design, the following factors should also be borne in mind: • A professional look will greatly enhance your status at an exhibition where your clients may not know you. Creating a professional look need not cost the earth. You may want to approach exhibition designers for help, or you may want to study some of the tips and hints we provide you. • Your stand need to be big - a smaller stand is cheaper and if professionally designed will have just as much impact as a bigger stand • A corner stand is one of the better locations to get • A location near a key focus point such as a lounge or meeting spot is also very beneficial 6. Organising your participation in the trade fair Introduction In this part of your plan, you need to sit down and prepare all of the activities that you need to undertake to ensure that the fair is a success. These activities are discussed below: Preparing presentation materials (Powerpoint slides, brochures, etc.) In preparing for your exhibition, you need to think what it is that you want to achieve and what the core message is that you hope to carry over to your stand visitors. The trade fair objectives that you set for yourself earlier on in your trade fair planning will indicate what you hope to achieve, but from this you
still need to distil a core message (be it "reliability", "quality", "adaptability", "innovation", or whatever). This is the message that you will incorporate in your promotional materials, stand design and interaction with potential customers. It is the message that you hope will attract potential customers to do business with you. Once you have decided what this message is, you need to prepare a presentation that outlines what you want to carry across to your customers. You will probably use a program such as Powerpoint to prepare a number of slides highlighting the key points that you want to make (about your company, about your products, etc.). This presentation you may use at the stand either on an ad hoc basis to example things to a potential customer, or you may use it as a perpetually running background display about your company and products. You will also use aspects of this information in your other supporting promotional materials and these need to be prepared as well - brochures, flyers, catalogues, price lists, posters, etc. Today, CDs are a powerful way of promoting companies and their products and don't take up much space. Make sure that your promotional materials are professionally produced - after all they reflect your company and its products. Preparing your samples With your objectives in mind, your core message outlined and a framework of a presentation at your disposal, you can now focus on other important issues. One of these is deciding on what samples you will take with you. For some companies, it is sufficient just to have brochures, videos and catalogues available to show clients, but in many other instances, it is much more effective to have actual products to show potential clients. This is especially true if the product has some unique feature which can really only be appreciated when seen and touched by the customer. For this reason you may want to have one or two samples with you for display. In some cases (if the product is small and cheap enough and won't be duplicated), you may want to give away samples and so you want to have enough samples on hand to give to potential customers. In the case of heavy machinery, you may also want to have this machine on display for visitors to see. Deciding on what samples you plan to have available at the fair is the first step. The next step is to prepare these samples for the fair - for example, there may be some thing you need to do to the product to ensure that it cannot be copied or to make its unique features more visible (a machine may have a cut-away so that you can see inside the machine). You may also have to specially produce these samples for the fair (perhaps printing your company details on the sample). You also need to think about how you will package the sample(s) to get them to the fair. A engine may have to be crated, while other samples can be carried in your luggage. You may also have to arrange for the freighting of the samples to the fair, but this we discuss later. Printing your promotional materials As we have already prepared the promotional materials, we now have to print them or produce them (in the case of CDs or videos). You will need to make the necessary arrangements for this. Bear in mind that you do not want to run out of promotional material on the stand, so you need to print/produce enough materials to last the time of the fair (and longer, if you will be doing some sales promotion after the fair). At the same time, you don't want to waste your promotional materials by having them left over and having to either take them back home with you or throw them away. For this reason, the numbers you print or produce need to be carefully thought about, but too much is better than too little. If you see that you will have promotional materials left over towards the end of the show, be more generous and hand them out to everyone, but if you see that you will be short, then hand them out only to the more promising customers. If you have materials left over at the end of the show, these could be passed on to an agent or other representative that you appoint. Arranging for the design and construction of the stand Your next big task is to design your stand and arrange for its construction. At
this point, there are several possibilities that you could follow. The first possibility is not to make use of any special design features, but only to have a desk and couple of chairs available at the stand, supported by some posters and other promotional material such as pull-up screens that you place on the walls and around the stand (a lot of smaller companies follow this route). Although this may be the cheapest route to follow, it may not carry across a very good impression and needs to be considered as an alternatively only if you are really have serious budgetary constraints. The better option would be to create a more professional designed stand using either specially designed exhibition materials or off-the-shelf materials. If you think you are creative enough, then maybe you can tackle the design task yourself. Design materials today are being produced in such a way that you can use them off the shelf without necessarily using a design service. Most of these materials are collapsible and can be packed in carry cases that you can take with you, or send ahead. However, if you don't have the time of the design inclination, stay away from this option. The best option would be to make use of a design service that is experienced with the needs of the exhibition industry and it is likely that they will come up with professionally designed stand materials that will add impact to your status in the foreign marketplace. Of course, stand designers are not cheap and this service comes at a price, but the price may be worth it, considering the cost and risk associated with exporting, especially if the design helps you achieve your objectives. You may also want to use a design company overseas. Costs are usually higher, but they can not only design the stand, but construct it for you. Your local company may know of a good exhibition designer in your target country or you may want to search for such a company on the Internet. Exhibition stand materials are usually created in an easy-to-carry manner which may allow you to carry your stand with you to the trade fair as part of your luggage. Alternatively, you may need to arrange for the stand materials to be forwarded to the trade fair by a freight forwarding company. This we deal with in a coming section. At the stand, you may also need to arrange someone to construct the exhibition shell for you especially if it was designed by a South African company as an easyto-construct kit or if you bough it off the shelf. While they are not difficult to construct, being in a foreign country and under pressure will just make the construction of the shell difficult and it may be worth it to hire someone to do it for you. Arranging for freight forwarding, delivery and clearance You will almost certainly need to make use of a freight forwarding company to deliver the samples, promotion materials and exhibition shell to the trade fair in question. Wherever possible, try to make use of a company that can guarantee deliver of these items to the trade fair itself. You do not want to be stuck trying to clear the goods through customs and trying to arrange them to be delivered from the airport or harbour to the trade fair itself. What is more, ensure that these goods are delivered timeously (which means that you need to deliver them to the forwarding agency in time). There is nothing worse than arriving at the show knowing that your samples, promotional materials and any other items haven't arrive yet - it will put you under considerable pressure at the fair. ATA carnets An ATA Carnet is a document usually issued by your local chamber of commerce that will allow you to take your samples into the country without paying duties on them, as long as you of course take them back out of the country with you. Booking your flights and other travel arrangements Other arrangements that you should not leave until the last minute are your travel arrangements - your flights and accommodation also need to be booked timeously. In the case of large, international trade fairs, it is not uncommon for flights and accommodation to become fully booked quite quickly. The earlier you book, the more
assured you will be of getting there and having a place to stay. Prices are often cheaper, the earlier you book. Click here for links to travel agents Arranging and preparing your support staff Will you need staff to help with the trade fair and what will they do. The sort of tasks that you may need assistance with include: • Assembling and dismantling your stand • Electrical and technical installations • Interpreting • Assisting with enquiries • Undertaking research • Handing out promotional material Arranging for payments If you plan to sell goods at the stand, then you need to think about how you will be able to allow customer to pay. Certainly cash is the best option, but many customers may want to pay using credit cards - will you allow this? It may be difficult to arrange and electronic point-of-sale machine at the trade fair, but if you design your website with a credit card facility as part of the site (and using a payment gateway that will work in the country in which the trade fair takes place), then you can use the online facility to take payments. Customer interaction You need to prepare yourself on how you will deal with customers and handle queries. Will you position yourself outside the stand and try and "attract" customers into your stand, or will you remain within the confines of the stand and wait for customers to come to you? What will you use as an attraction to get customers to come into your stand? If they have questions what will you do? What will you do if you have several customers wanting your attention at the same time? Will you hand a brochure and/or sample to every visitor? Will there be a facility (such as a running presentation or some exhibit) to keep your customers occupied and to attract their attention? How will you keep record of your discussions with potential customers? You will need to give thought to these and other questions relating to your customer interaction. You will also need to train any staff that you use to follow the same procedures. 7. Actually participating in the trade fair Introduction Finally the day arrives when you actually have to take part in the exhibition. This is what all of the weeks and months of preparation have been about. The next few days will be a busy, intense time during which you live and breath the exhibition. There are a number of tasks that lie before you and we discuss them below, but perhaps the most important task is ensuring that you bring everything with you when you leave your office in South Africa. There is nothing worse then arrive in a foreign country with important documents, addresses, contact numbers and forms missing. Before you depart South Africa, make sure that you: • Have all of your important documents with you (including your tickets, passport, money, etc.) • Have a list of all of the important contact details of the people you will be dealing with overseas • Have enough business cards and all your promotional material with you • Have your stand contract with you, as well as any other relevant contractual documents • Have samples with you, if you plan to take them with you • If you're taking samples with you, ensure that you have your ATA Carnet documents at the ready to clear your samples through customs in the target country • If you are bringing your stand structure with you (yes, it is possible to carry the stand with you; modern stand structures are often fully collapsible and very light-weight), have these ready and packed
Arriving overseas Step one is to get to your hotel and to check in. It is always best to have an established base from which to work - a place that you can call home for the next few days of the exhibition. Unpack, settle in and get yourself organised. Have a quick nap if you can. Once you are settled in and more refreshed and give your attentiuon to other tasks. Hopefully you were able to arrive a day or more ahead of schedule with stand assembling taking place in the next day or two. This will give you time to visit the exhibition hall and to orientate yourself as to where everything is. It will also give you time to make contact with the people that you will be working with. It would be wise to call these individuals as soon as possible to ensure that there are no misunderstandings and that they will be ready for you as orginally agreed. If there is a problem, then you still have day or so to sort things out. Stand assembly Make sure that you are at the exhibition hall early. You don't want to arrive late and find that they are assembling your stand incorrectly. Instead be ready and waiting. Be careful not to interfere too much with the stand designer/assembler they are the experts after all, but the stand should meet your requirements. Do not get into a fight or be too overbearing. The last thing you need is for the assembly team to go on strike! Instead wortk with them and communicate your expectations clearly and in a friendly manner. If you are doing the assembly yourself, get down to it and prepare the exhibition area with space for promotion (banners, brochure stands, display walls and multimedia facilities) and meeting space; an area where you can sit down and discuss matters with potential clients. Try and keep the design simple, attractive and professional. The exhibition itself Your stand has been assembled, your promotional materials are in place and the exhibtion has started. This doesn't mean that you can sit around waiting for potential customers to arrive. There is nothing less attractive than a stand with the staff sitting in the corner looking bored and disinterested. You now need to begin "pulling" customers in. Customer interaction is critical. Smile as visitors walk past. Show interest; hand out brochures. Invite them to take a business card. Ask a brief question or two, but don't become over-bearing or "pushy" - this will just chase customers away. Don't rush out and tray and hijack visitors walking by; this comes across as very threatening. A good ploy is to ask visitors to leave their business card for a draw for some or other prize at the end of the exhibition - make it worth while. A few thousand rands in prize material will encourage visitors to voluntarily give you their business card. These cards are serve as excellent leads for the future. Take time to walk around Remember, that although you want to get customers to come to your stand, your competitors are also on display and it would be very beneficial to walk around and to get some idea of what the other companies are offering. Also look at their stands and supporting material for future reference; maybe they are doing something that you could copy. Do not walk around in the busiest time - this is when you need to be available at your stand. Walk around very early on or late in the day when most visitors are not yet there or have already gone home. Writing up your notes You will almost certainly not remember what was said between yourself and the many customers that visit your stand. For this reason, you need to keep notes! The best way to do this is to prepare a discussion sheet that you can write on, and that lists the issues you need to raise and/or get clarity on. Make sure you get a business card and staple the business card to this sheet, otherwise jot down the person's contact details. Be careful of using a digital recorder or video cam to record sessions as this may be viewed as an intrusion of privacy and may chase visitors away. Ensuring that the stand is properly dismantled
At the end of the fair, the organisers normally allow you limited time to dismantle your stand. Get down to this immediately - the longer you take, the more frustrating the exercise becomes. Be careful with security, this is often the time when most valuables are stolen as you wander from the stand to the truck where you will be loading your materials for transportation back to South Africa. The organisers will expect you to ensure that your stand is fully dismantled and is clean - if they do not provide for the clean afterwards, it may be an expense that you need to arrange and account for. Ensuring that materials are returned to South Africa If the shell materials, samples, promotional material, etc. are to be returned to South Africa, then you will need to arrange this. You will almost certainly have arranged this with your freight forwarder in South Africa beforehand. They will provide you with a contact person and company name usually in the city you are located in and this firm will come and collect your goods to be returned to South Africa. Make sure that you give them a call a day or two ahead of time to ensure that they do not forget and that they will be there on the day you dismantle your stand. If they speak another language or you experience any problems, then call your freight forwarder in South Africa and ask them to deal with their representative. After all, you will most probably be paying the South African forwarder for the full service and so it is up to them to ensure that everything runs smoothly. Prepare your follow up Prepare a plan of action on how you will follow up on the enquires you have received. Some of these enquiries may only require a courtesy e-mail, asking if they want to pursue the matter. Others may be more serious and may require you sending more information. If you plan to still appoint an import agent or similar representative, then there may be more information you require from the firm (background information, company history, credit information, etc.). 8. Ensuring thorough follow-up after the fair Introduction Without follow-up, all of your efforts and the all the money you have spent will have been in vain. Do not expect potential customers to call you. You need to contact them. E-mail is the best way to do this. A few days (not too long) after the exhibition you should send them an e-mail (or fax or letter, if they don't have e-mail). Thank them for visiting your stand. In so doing, you will be reminding them of your company, your stand and your products. Mention to them that you are interested in establishing a market for your products in their country and that you are seeking agents and/or customers. Ask them very briefly, but directly if they are interested in your product and if not now, might they be in the future? Ask them if they mind if you send them the occasional informative e-mail about your products. In the instances where you had more in-depth discussions with individuals at the exhibition, refer to your notes and include a summary of your discussion in the email. Provide them with any information you might have promised them. If the discussion was fairly detailed and/or promising, you may want to put a specific proposal to them. If the discussion was fairly general, keep your comments simple as well. Be careful about providing too much strategic information to potential competitors. If you beleive that a potential customer is actually a competitor, send a short thank you e-mail and invite them to ask you if they want any further information. Check out their websites to see if they are, in fact, competitiors. If they are, what can you learn from them. Could there be potential for cooperation? Don't loose faith in your contacts. It is unlikely that they will respond with an order immediately. It may take months or even years before one of them becomes a customer. For this reason, you should keep them on your mailing list. Send them your e-newsletter, if you have one, or send them the occasional e-mail keeping them up-to-date with developments in your firm - new products, price lists, etc. If they ask to be taken off your mailing list - do so. This is a matter of
professional courtesy. Most will be happy to receive the odd e-mail from you and the chances are that one of these contacts will eventiually become a customer. Do not send out e-newsletters or e-mails too often; at most one per month (quarterly is perhaps even better) - you don't want to annoy your potential customers. Publicity What is public relations? Public relations (also referred to as PR) is the activity of communicating with customers, potential customers, intermediaries, the general public and any other interested stake holders (together referred to as your firm's 'publics'), usually through means of the general or specialised press (although any media can be used), with the idea of generating goodwill and positvely influencing public opinion towards your company and its products. Put another way, it is about keeping good relations with the public (not necessarily only your customers). Examples of public relations include support of charitable events, news releases about some positive activity of the firm, such as community participation. Public relations and publicity Publicity is a form of PR which is unpaid and carried in the mass communication media because the information in question is considered newsworthy by the media. PR involves basically generating positive publicity for and countering bad publicity about the firm. Publicity, the alternative to advertising Publicity differs from advertising, therefore, in the fact that it is not paid for. Considering that the expense of advertising is on its major drawbacks for the average exporter, publicity seems a good alternative for most exporters (especially smaller ones). However, the problem with publicity lies in the fact that the medium through which you want to publicise your firm, must be interested enough in what you have to say to carry your newsworthy 'story'. In some cases with very specialised products and magazines for example - this may be quite easy, but in other instances, publicity may be very difficult to generate. Publicity is not always easy to generate It is usually particularly difficult for an exporter to place press releases with overseas media because of the distance involved. The media owner probably doesn't know about your firm and will want to use their space for other more newsworthy publicity. Nevertheless, you should still endeavour to get positive media coverage, particularly in respect of any new additions to product lines or improvements to existing products, wherever you can. To this end, you need to identify and obtain copies of overseas magazines and publications in your target market that focus on your product line or industry (you would gather these publications as part of the research you undertook in step 7 of the export process). Bear in mind that many industry associations, chambers, government departments, newspapers, magazines, etc. are always on the lookout for news that may be of interest to their respective audiences. A trade magazine specialising in engineering in your target market, for example, may be willing to carry an article about your firm and its efforts to establish itself in their local market. The same may be true of the local chamber of commerce which will be happy to include an article in their newsletter. Of course, not all of these channels will be prepared to carry your article, but many may. Your task is to find the right publicity channels, prepare a short, relevant article and submit it to the editor/publisher for publishing. An occasional follow-up as new developments take place, is also worth considering. You need to consider, though, that editors tend to use the material that is appropriate in content and style to their readership and which requires the minimum of editing or sub-editing. Editors are normally experienced journalists and can see at a glance whether material is suitable for publication or broadcasting. Purely promotional material is unlikely to be published - material submitted must have definite news value. It is essential, therefore, that you write any story from the reader's point-of-view. You may want to hire a
professional journalist or PR specialist to prepare one or more articles that you can use (perhaps adapting it yourself for different magazines). Personal selling What is personal selling? Du Plessis et al define personal selling as two-way person-to-person process during which the seller learns about the prospective buyer's wants and needs, and seeks to satisfy these wants and needs by offering a range of products or services that the seller has available to offer to the buyer. The seller will commonly try to positively influence the buyer's decision about the purchase of the goods the seller has available. Personal selling can also take place over the telephone. You need to find a salesperson with the same language and cultural characteristics Because of the need to communicate and interact with the buyer, successful personal selling in foreign markets is dependent on understanding the target country's country's social, cultural and language characteristics. For this reason, personal selling should be carried out by a salesperson that can speak the language and that share the culture of the target country. You may either make use of a travelling salesperson or use a person that is based in the target market. The latter option is probably the best option to follow for the serious exporter, but is very expensive and requires considerable management effort. The foreign-based export salesperson Very few small to medium exporters would have the resources to run a foreign-based salesperson, certainly in the early stages of foreign market development. Salaries are inevitably high and the associated costs (office rental, furniture, computers, electricity, telephone, Internet access, etc.) are also high. You also need to ask yourself whether the foreign-based salesperson will be fully occupied and whether they will be able to generate enough sales to cover their costs. You also need to ask yourself whether the foreign-based salesperson will have enough understanding of and commitment to your company and its to do a good sales job. Of course, it may be that you need to the salesperson to undertake additional tasks such as product training and product support, as well as to deal with administrative matters. These additional tasks may well justify the expense of a foreign-based salesperson. As your firm's exports grow, so the idea the possibility of employing a foreign-based salesperson becomes more justifiable. Relocating a salesperson from South Africa An alternative to employing a foreign-based salesperson would be to locate a local salesperson from South African to live and work in the foreign marketplace. This person would also be an expatriate in the sense that he/she is a South African living and working in a foreign country. This is an even more expense way of employing a foreign-based sales person. You will need to take into consideration the employees' conditions of service and the high cost of foreign living, including the relocation to this market. Conditions of service are of particular importance to an employee who is based in another country and such matters as salary, expenses and career development should be sorted out before (s)he is posted abroad. Actual salary levels and the allowance for the local cost of living need to be established separately for each country that you target. The only reason you would follow this route would be becuase the salesperson has been with the firm a long time, has a deep understanding of the firm and its products, and is a committed and diligent salesperson who you know is capable of working on his or her own. You would need put this person on language training courses and you need to be convinced that they have the personality to fit in with this new culture; not everyone hands new cultures and environments in positive way. You are unlikely to employ someone new in South Africa and then relocated this person on a fulltime basis to the new foreign marketplace. It is doubtful whether this person (even if you chose someone that speaks the langauge) would have the company background or commitment necessary to succeed. The travelling export salesperson An alternative to to the foreign-based salesperson is the travelling salesperson.
Because this person or team is based at home, your operational costs will generally be much lower even if travel is factored into the equation. What is more, this person could be taksed to also handle many of the administrative, financial and/or logistical tasks associated with your firm's exports and in so doing, you can better justify his/her costs. The person could also undertake product training and provide product support when overseas, thereby setting off some his/her expenses against other cost items (i.e. training and support). Having the person work from your home base means that they are far more likely to have a deeper understanding and commitment to your company. This person should nevertheless, still be selected to have the same cultural and language characteristics as in the target market (using an expatriate - a foreign national living in South Africa - may be a possibility). When is it OK not to speak the language and understand the culture While we argue that it is essential to use a salesperson that has the same language and cultural characteristics as are to be found in the target market, the only time this need not be necessary is when the owner or export manager of the firm undertakes the personal selling task themselves. Their position and status as 'head' of the firm's export operations, may help them overcome (to a limited extent) the language and cultural barriers they will face. These barriers will still require attention and you may need to employee a interpreter when you make these sales calls. An effective export salesperson should have the following attributes: • (S)he should be able to make decisions (often on the basis of very little information) and take risks and opportunities of considerable magnitude. Overseas buyers lose patience with sales staff who are constantly referring back to headquarters for instructions. • (S)he should be capable of guiding agency operations and training agency staff. • (S)he should know where to look for advice and information and how to interpret market research data. • (S)he should be able to adapt to, and identify with, cultures very different from his/her own. • (S)he should be able to persist in the sales task without supervision. • (S)he should have a sound constitution, as (s)he will be subjected to extremes of climate, strange food and indifferent hotels, as well as company and customer entertainment! • Ideally, (s)he should be fluent in the language(s) of his/her potential customers. Sales through agents An alternative to employing a salesperson, is to close an agency agreement either with firm or individual in the foreign marketplace. An agent is a company/person who represents your company in the marketplace within which they operate. They may represent several other (even competing) products. An agent is usually paid a commission and never really takes ownership of your products. The task of the agent is to bring your company into a contractual relationship with third parties (i.e. buyers), for which they get paod a commission. An agency agreement is a legal relationship that exists between your firm and the agent. Employing an agent is like have a part-time salesperson working for your company. The problem with agents is that they do work for you directly and you have little direct control over them. If they are poor, you will inevitably waste your time (and maybe some money). A good agent, on the other hand, can be extremely profitable for your firm. It is essential therfore that you employ a good agent. Bear in mind that legal title to your goods never passes to the agent - it passes, because of the agent's efforts, directly from your company to the customer, with the agent receiving remuneration by way of commission. Salesperson versus sales team For most new exporters it will be difficult to even get one fulltime export salesperson into the field. They are expensive which ever route you follow, and
you are not generating any sales as yet. Few exporters will be in a position to afford one salesperson, let alone a whole team. However, with some more established exporters it may be necessary to put a sales team into action. There may be an engineer that understands the product; a financial manager that can crunch the numbers and thrid member that does the actual negotiating. The Japanese, for example, almost always use teams when they sell. Using a sales team has it advantages in the sense that the work is divided between team members that are expert in their respective areas. If a team works well together, they can put put a more effective sales pitch into effect. A sales team is also a more professional and serious approach. Clearly, only larger firms are truly in a position to make use of the sales team. It is also highly unlikely that an exporter will establish a whole foreign-based sales team in the target market - it is simply too expensive. Having said that, a few multinational companies such as Bell Equipment company, SABMiller and others may well make use of sales teams as their size can justify it. Step 2: Determining the extent of standardisation of your export promotion effort Standardisation saves costs We ahve already discuss the question of product standardisation and the same type question arises when we get to export promotions. Despite cultural and environmental differences, significant economies of scale (and hence cost savings) can be achieved by standardising your international promotional efforts. Obviously, it is not possible to standardise all aspects of an advertising campaign, for example - language differences alone would prohibit this. However, it may be possible to have a standardised or common promotional strategy, creative idea and message, and in many cases also a common medium. Standardisation reduces costs such as those related to artwork, copy-writing, block production, printing, film production and the use of creative staff and, in many cases, may actually improve sales. The Avis Rent-a-Car company, for example, achieved considerable success in Europe with the "We Try Harder" slogan that it introduced in the USA What to bear in mind when standardising your promotional campaign When deciding whether or not to standardise, you should take the following factors into consideration: • The general similarity or diversity of the markets to be covered. Where cultural differences are minimal, and income, education and lifestyles are similar, buying motives are likely to be the same. • The nature of the product. Industrial goods and tourist items tend to be purchased on objective criteria that make standardised advertising particularly suitable. • Local advertising agency standards. Where the pool of creative talent is limited, standardised advertising is likely to be more successful than a locally tailored campaign. • Government and other restrictions which may prohibit the use of certain media and/or advertising copy themes • The availability of certain media, such as television, the Internet, or radio in the countries concerned Prototype campaigns Where standardised promotional campaigns are not appropriate, prototype campaigns may be suitable. Prototype campaigns are usually based on commonalties identified by consumer research in a number of representative markets. The prototypes, which are usually prepared at your firms's head office, are then dispatched to local representatives (e.g. your agents or sales staff) in each foreign market for modification to meet specific market needs. Levi Strauss & Co., the American originator of blue jeans, for example, introduced an advertising strategy "where the broad outlines of the campaign are given but the details are not". Selling Levi's around the World Levi's are sold in more than 70 countries with different cultural and political
aspects affecting advertising appeal. The company is evaluating its present advertising strategy to determine whether to apply a world wide strategy to all advertising or whether to settle on localised campaigns in each country. Currently, the company creates campaigns locally or regionally. Here are some of the appeals used: • In Europe, TV commercials have a super-sexy appeal. • In the United Kingdom, ads emphasise that Levi's are an American brand and star an all-American hero, the cowboy, in fantasy wild west settings. • In Japan, local jeans companies had already positioned themselves as American. To differentiate Levi's, the company representing the brand, positioned themselves as legendary American jeans with commercial themes such as "Heroes Wear Levi's" featuring clips of cult figures like James Dean. The Japanese responded awareness of Levi's in Japan went from 35% to 95% as a result of this campaign. • In Brazil, the market is strongly influenced by fashion trends emanating from the Continent rather than from America. Thus, the ads for Brazil are filmed in Paris featuring young people, cool amidst a wild Parisian traffic scene. • In Australia, commercials were designed to build brand awareness with product benefits. The lines "fit look tight, doesn't feel tight, can feel comfortable all night" and "a legend doesn't come apart at the seams" highlighted Levi's quality image and "since 1850 Levi's jeans have handled everything from bucking broncos" stressed Levi's unique positioning. (Source: P R Cateora, Strategic International Marketing) Problems encountered with standardisation Special problems that the exporter might experience with standardisation which are related to national differences, usually affect: • The advertising message • The selection of appropriate advertising media • The selection of suitable advertising agencies These factors are discussed in more detail below: The advertising message Legal restrictions and social constraints that vary from country to country quite often hamper freedom concerning the advertising message. In the case of the local export community, standardised advertising copy is commonly generated in South Africa and then translated for use in other countries, a practice that, if incorrectly handled, can negate the entire value of an advertising campaign. An apparently correctly translated message may become either incomprehensible or, at worst, make both the manufacturer and the product look ridiculous. A classic example of such an error was the translation of the English proverb, "Out of sight, out of mind" which, when translated into a foreign language, read "Invisible things are insane!" To avoid the pitfalls of incorrect translation, the following rules should be adhered to: • Translate thoughts and ideas, do not provide a literal translation of words • Copy should be designed and written with translation in mind. • Unusual idiomatic expressions and slang should be avoided. • A native, professional should be used • The same language spoken in a number of different countries may have differences in its use - Spanish spoken in Colombia, for example, differs from Spanish spoken in neighbouring Venezuela • Local nationals who have experience in the relevant product area, e.g. agents or distributors, should always check the translation • The final proof should be re-checked by both the translator and the agents/distributors Advertising media Most advertising in the world is done through national media. However, where standardised advertising is planned, the exporter may choose to use international media. i.e. publications which receive coverage in a number of different
countries, e.g. consumer magazines such as Reader's Digest, Time or Business Week, or various trade and technical magazines. Ultimately, the exporter must select the media which are most likely to reach the target market cost-effectively. In achieving this objective, the following would normally be considered: Suitable media may either be restricted in use or unavailable in the target market. Television advertising is often state-controlled and advertising time is strictly limited both in terms of the number of minutes and in terms of the number of minutes per product per annum. Examples of problems you may encounter, include the following: • The advertising of certain products, such as tobacco products or alcoholic beverages may be forbidden or restricted in terms of the law. • In many developing countries, it is difficult to acquire information on the circulation of publications or the type of people that they attract. • Where literacy levels are low, radio advertising, for example, may be more appropriate than press advertising. • Many countries tax advertising while other countries charge a special tax on imported advertising material. The effect this is likely to have on the marketing budget should be borne in mind. • Where the target country is multilingual, such as in Switzerland, regional media which specialise in the language spoken in that region, should be considered. • The quality of reproduction provided by some media may be unacceptable and this aspect should be investigated prior to a final choice being made. Advertising agencies In choosing a suitable advertising agency, the following should be taken into account: • The extent of market coverage of the agency. Not all markets that you may be interested in may be covered by the agency in question. • The quality of service offered. This differs from market to market and may even differ between branches of the same agency. • The extent, in financial terms, of the business offered to the agency. Major international agencies and certain foreign agencies may not handle small advertising campaigns • The need for international co-ordination. Where the advertising budget is considerable and a standardised campaign is planned, good co-ordination and control, usually achieved through a single international agency, may be required. • Larger concerns with operating bases in other countries may prefer to leave agency selection to a local subsidiary. This could also be the case in respect of joint venture arrangements or where advertising is done in conjunction with a local distributor. Step 3: Deciding on the core message(s) you will use to promote your product and company. What message do you want to carry across? The final step in your planning your export promotion strategy is deciding on a core message that you want to carry across. Remember - this is only the export planning stage. The implementation of your export plan comes later - in step 10 of the export process! At this point you don't have to go into any detail about your promotional message or actual promotional campaign. It is fine to provide a brief overview of what core message you want to carry across about your company. It doesn't have to be a single statement; it can be a few descriptive sentences highlighting marketable aspects of your firm and its products. This information will later be adapted and refined to underpin you ultimate promotional campaign. While this core message will serve as your starting point and only requires a short paragraph to highlight the key points you wish to carry across, you should not pay it scant attention; it does require some thinking on your part. For example: Do you want to carry across the message that you are competing on price, quality, design or features? Do you want to say something about the company; its history and success in South Africa? Do want to say something about your export
motives? An example of a core promotional message An example of the core message that you will use for the rest of the promotional campaign, may read something like this: Core message We are the leading South African producer of leather OEM car seat coverings, focusing on variety, reliability and quality. Our success in the local market has enabled us to become key suppliers to the major international autmotive manufacturers in the country. Step 3: Deciding on the core message(s) you will use to promote your product and company. What message do you want to carry across? The final step in your planning your export promotion strategy is deciding on a core message that you want to carry across. Remember - this is only the export planning stage. The implementation of your export plan comes later - in step 10 of the export process! At this point you don't have to go into any detail about your promotional message or actual promotional campaign. It is fine to provide a brief overview of what core message you want to carry across about your company. It doesn't have to be a single statement; it can be a few descriptive sentences highlighting marketable aspects of your firm and its products. This information will later be adapted and refined to underpin you ultimate promotional campaign. While this core message will serve as your starting point and only requires a short paragraph to highlight the key points you wish to carry across, you should not pay it scant attention; it does require some thinking on your part. For example: Do you want to carry across the message that you are competing on price, quality, design or features? Do you want to say something about the company; its history and success in South Africa? Do want to say something about your export motives? An example of a core promotional message An example of the core message that you will use for the rest of the promotional campaign, may read something like this: Core message We are the leading South African producer of leather OEM car seat coverings, focusing on variety, reliability and quality. Our success in the local market has enabled us to become key suppliers to the major international autmotive manufacturers in the country. Export distribution Your first decision - market entry In preparing your export plan, one key concern you will face will be how to get your export product(s) to your prospective buyers as well as your ultimate customer located in target market(s) half-way across the globe. In this regard, there are three issues that you need to consider. The first is how you plan to enter the market. 'Market-entry' is commonly discussed under the heading of export distribution and deals with the options available to you in gaining entry to and establishing yourself in these foreign markets. Market-entry, however, is much broader than just the physical distribution of goods and will impact on your other marketing elements as well (namely, product, promotion and price). Examples of market-entry include indirect exporting, direct exporting, licensing, franchising, joint ventures, manufacture abroad, foreign assembly and management contracts. It is easy to see that manufacture abroad, for example, while one of several marketentry options available to you as an exporter, will also impact on your firm's export promotion effort, export price and even on the product (your producty may need to be adapted in some way in order to be manufactured abroad). Click here to learn more about the various market-entry options available to you. Your next decision - in-market distribution The second issue you need to consider is the movement of goods within the foreign market, referred to as in-market distribution. Once you have decided to use a foreign distributor, for example, you need to be aware of how the product reaches
the eventual consumer even though it may not always be under your direct control or your responsibility. Depending in which market-entry option you use, your control and responsibility over the in-market movement of goods will vary. With some market-entry options such as franchising or licensing, you will have some control (perhaps evn a lot of control). Other market-entry methods, such as working through a foreign distributor, will mean that you have little or no control over in-market distribution. Nevertheless, you still need to be aware of what happens after you sell your products to the distributor (even though you probably won't know all the details), as this knowledge will help you formulate your pricing, product and distribution strategies better. Click here to learn more about in-market distribution. Payment terms and Incoterms impact upon your distribution responsibilities The third issue you need to address is the payment term (or Incoterm) you plan to use. Bear in mind that when negotiating with the overseas buyer, you will inevitably agree to your payment terms based on a particular Incoterm (such as Ex Works, C&F or DDP). This Incoterm will dictate where your responsibility as the seller starts and ends and, consequently, the Incoterm also has a direct bearing on your distribution strategy. We discuss Incoterms from a distribution poin-ofview in a later section. Click here to learn more about payment and Incoterms. The physical distribution of your goods The fourth issue that you need to concern yourself with is the physical distribution of the products you are exporting to your target market. Although physical distribution is clearly a component of your market-entry strategy and the in-market movement of goods within the target market (which we mentioned above), it is important enough to discuss separately. The physical distribution of your goods involves ensuring that your goods move from you factory to the end user. As far as the physical movement of goods is concerned, you also need to decide on how your the goods will be transported from your factory to the end user and who will take care of this physical movement of goods. Click here to learn more about the physical distribution of your goods abroad. Managing the distribution process Ideally, you, as the exporter, should control or at least be involved in the distribution process through the various channels to the final buyer, whether this is an industrial end-user or a consumer. Such involvement, however, is not always practical or cost-effective. Consequently, your choice of intermediary and subsequent management of the channels must be sound. The channels you select will ultimately affect every other marketing decision you make. For example, if the marketing channel is a long one, the various mark-ups enjoyed by the intermediaries involved will ultimately affect the consumer price and this will have an impact on sales volume. Similarly, the size of a sales force will depend on whether goods are sold directly to retailers or only to wholesalers. The channel decision will also involve the company in long-term commitments from which it may be difficult to extract itself should company policy change at a later stage. Sight should not be lost of the fact that, by using intermediaries, effective control over the market is lost, and therefore the selection of the channel constituents must be carried out with particular care. Before embarking on this task, the exporter needs to ensure that company policy has been clarified and communicated to each channel member in respect of the following: • The company's specific export marketing goals, expressed in terms of sales volume, market share and profit margin requirements • The financial and human resources that are to be allocated to the development of international distribution • How the channels of distribution will be controlled, the length of channels, terms of sale, etc. Preparing a distribution strategy statement for your export plan These distribution issues we discuss in detail in subsequent sections. Once you have worked through these various issues, you should be able to prepare a
statement outlining your export distribution strategy. This strategy should outline the following; • Your choice of market-entry channel • Your choice of in-market channel • Whether you plan to market and distribute your goods directly or indirectly • Whether you plan to use intermediaries or not • How you plan to manage the distribution channel 1. You can market, sell and/or distribute the goods directly to the end-user, as is often the case with industrial goods or when selling over the Internet. 2. You can market, sell and/or distribute your goods to foreign customers, using local and foreign intermediaries who perform a variety of functions associated moving the goods from the product, as is often the case with consumer products. 3. You can market, sell Should the second alternative be chosen, your involvement will normally be with more than one intermediary and each individual link in the 'distribution chain' will interface with the others. This marketing network is known as a marketing channel or a distribution channel. A typical example of which is the manufacturerwholesaler-retailer distribution channel used for many consumer goods. Market-entry channels Markety-entry - Direct versus in-direct exporting We have said that your first distribution decision will be how to enter the market; which we - not surprisingly - referred to as market-entry. Market-entry can broadly be further divided into two categories, namely in-direct and direct exporting. Indirect exporting In-direct exporting is when you sell your products to local companies in South Africa as though they were local sales, yet your products are then sold onwards by the buyer to foreign customers. For your firm, the sale is nothing more than a local sale; you are paid in rands and the sale is like any other domestic sale. Nevertheless, your products still end up crossing the border and being sold in other countries. In fact, you may not even be aware that your products are ending up overseas. On the other hand, you may well be aware that the local buyer is selling your products into foreign markets and this fact may have spurred you on to begin with your exporting endeavours. Alternatively, you may be quite happy to continue along this route as it requires very little effort on your part and represents a low risk route into exports. To learn more about the different types of in-direct exporting, click here. Direct exporting Direct exporting is when you as the exporter are more involved and have some control over the exporting process. With direct exporting you will normally receive payment directly from abroad; that is, it is no longer a domestic sale as in the case of in-direct exporting. There are essentially three different types of direct market-entry channels available to you. These are: 1. Those that involve selling directly to an overseas customer who may be the end-user, or through an intermediary such as an import agent, distributor, through your own sales subsidiary based in the foreign marketplace. Click here to learn more. 2. Those that involve licensing, franchising and contracting, i.e. involving the sale of knowledge or skills to overseas buyers. Click here to learn more. 3. Those that involve manufacturing abroad, e.g. a joint venture arrangement or the establishment of a wholly-owned off-shore manufacturing operation. Click here to learn more. Factors affecting the choice of market-entry channel The choice of market-entry channel will, of course, depend on: • The company's objectives in respect of the desired volume of international business, expected geographical coverage, etc.
• The size of the company in terms of sales and assets • The company's product range and the nature of its products, e.g. industrial or consumer, high or low price • The competition in the foreign market However, a number of other factors, which are unrelated to the company and its industry, will also need to be taken into consideration whenever entry into a new market or a change of established channels is contemplated: • Channel availability: Different markets call for different approaches to market-entry. For example, some countries will not permit wholly-owned foreign operations; licensing may not be an option because of the lack of qualified licensees and in some small markets, the only reputable agent may already be representing the competition. Thus, the company might eventually opt for whollyowned operations in some markets, marketing offices in others, and agents or distributors in the rest. • Sales volume and profit objectives: Sales volume will depend to a large degree on the channel selected - a small marketing office in the capital city is going to generate fewer sales than a sales force that covers the entire national market. Estimating its long-term sales and costs, and comparing profit margins with sales volume can determine the profitability of a particular market-entry method. A 15% profit margin on a high sales volume may be preferable to a 20% margin on a lower sales volume. • Operating costs: Estimated sales volumes should always be considered in relation to the cost of a particular market-entry method. Setting up a manufacturing operation in another country, will involve considerable initial investment and ongoing working capital. For other market entry channels, finance may be required for inventories or for extending credit facilities. • Personnel requirements: Certain market-entry channels may be out of the question because it may not be possible to meet the necessary personnel requirements. The establishment of a production plant, for example, might require skilled managerial and technical staff. • Risk: The greater the company's investment in the foreign market, the higher the risk. Apart from capital investment, the company may risk inventories, receivables and may incur a financial loss because of exchange rate movements, etc. In general, the more direct and visible the entry of a company in the market, the more vulnerable the company is. • Control: The degree of control that a company is able to exercise will depend on the market channel selected. A firm selling to a local trading company might have no control at all, whereas it would be possible to exercise firm control over an overseas marketing or manufacturing operation. • Flexibility: Environmental and market conditions often change over time. The exporter may either want to expand its involvement in the foreign market to take advantage of new market opportunities, or to cut down its operations because of adverse developments. This should be borne in mind at the time of choosing a particular entry channel. Indirect export distribution The different indirect exporting options We have said that indirect exporting is when you sell your products to local companies in South Africa as though they were local salesl; you are paid in rands and the sale, yet your products still end up crossing the border and being sold in other countries. There are several different indirect exporting options available to you. These are: • Foreign buying offices located in the local market - Large international retailing organisations such as Walmart, Sears, Sainsburys, Carrefour and others may establish buying offices in various countries that they consider to be major sources of supply (such as the US, China, India, etc.). These buying offices then approach local firms to buy goods from them. For the local supplier, it is just another local sale. The buying office pays in rands and takes all the responsibility of distributing the product to their home base, wherever it may be.
Occasionally, large industrial firms may also establish buying offices in countries that represent major suopplier to the firm. Are there many such buying offices in South Africa? The answer is no. Besides for an industry such as the fruit industry, South African is not such a major international supplier to warrant these retailers establishing buying offices in the country. • International trading company (ITC, also called an international trading house (ITH)) - There are a number of companies around the world that specialising in buying and selling products internationally. They often establish branches in several countries around the world and each branch operates as a separate business unit buying from the local market and selling through its branches into other foreign markets and visa versa. The Japanese are well-known international traders and examples of Japanes companies active in South Africa include Mitsui and Itochu. Another (non-Japanese) example is the Gerber Goldschmidt Group, but there are many others. These trading companies may go beyond just buying and selling and may begin to become involved in operations by buying a stake in local companies or entering into joint ventures. Sometimes these operations may be referred to as export trading houses (ETH) or export trading companies (ETC), but there is a subtle difference. An ETC/ETH is a local company that buys and sells international for its own account, while an ITC is a overseas company with office or branch in the local market, that buys and sells goods internationally. • Multinational purchases - South Africa has a few local companies that have grown to become major multinational (even global) firms. Companies such as Bell Equipment Co., Altron, Barlows and SABMiller are such examples. Also, there are global companies with operations in South Africa - consider BMW, Ford, Toyota, etc. It is quite common for these companies to buy raw materials and components from local suppliers and to use these inputs in their respective manufacturing processes. As these companies export their products around the world, so any component that you may have supplied them also finds its way overseas. Yet, for your company, it remains a local sale. • Tourist purchases - Foreign travellers visiting South Africa are major consumers of certain products (curios, wines, fruits, clothing, gifts, etc.) that they take back home with them. Agin, for your company, such as purchase is nothing more than a local sale. • Piggyback exporting - There may be export or multinational firms that sell their goods internationally and that have built up a comprehensive marketing network abroad. In order to maximise the power of these networks, these companies may seek complementary products to their existing range of products which they can then also sell through their networks to their foreign customer base. Consider Bell Equipment Co. that sells heavy earth-moving and forestry equipment into Europe. They could decide to take on additional industrial equipment (such as heavy-duty jackhammers or chainsaws) that they don't manufacture but that complements their existing range of products, and then sell these products to their European customers through their European sales network. Often the companies that provide the piggybacking service (called the carriers) take responsibility for the marketing and distribution themselves and simply buy the products from the local supplier (known as the 'rider') as with a normal domestic purchase. For the supplier, it is just another local sale. In other instances, the rider and carrier may work toegther and share the cost and responsibility, perhaps with the rider paying a commission to the carrier for use of their network. In this latter instance, this is not considered a form indirect marketing, but is instead a type of direct exporting. • Export management companies - EMCs are common in the US, but are unknown in South Africa. Usually, an EMC manages exports for another company. If the EMC takes full control and responsibility of the exports (including payments) for a management fee but with minimal invovlement on the part of the manufacturer, then this could be considered an indirect form of exporting. If, however, the EMC manages the export activities of a manufacturer with their involvement and cooperation and if the manufacturer receives payment from the overseas buyer, then
this is a form of direct export which the manufacturer is simply using the EMC to provide a service. • Export agents - Export agents are similar in function to EMCs and while EMCs are not common in SA, export agents are. Whereas EMCs normally take full control over a manufacturer's exports, an agent provides a market and administrative function for a fee or commission. In most instances where export agents are involved, the manufacturer (the principle) still receives payment direct from the foreign buyer and as such this form of market entry is considered a direct marketentry method. If the export agent also handles the payment, then perhaps it could be considered an indirect form of exporting. In this latter case, there is little difference between the EMC and the export agent. Generally, however, using an export agent is not considered an indirect form of exporting (and should instead be discussed as part of the direct market-entry options). Different forms of representation in international trade Agent on commission This is a person who acts on behalf of a principal either by soliciting orders, or concluding contracts, or negotiating deals using the authority vested in him by the principal. Payment is usually made in the form of a commission. This type of agent is most suitable where long- term selling is required to a fairly large number of customers. One agent could represent a number of manufacturers of complementary and non-competitive products at any one time. If the principal has some doubt about the credit-worthiness or financial status of the buyer introduced to him by his agent, (s)he may ask the agent to assume liability in case of non- payment by the buyer. In other words, the agent is asked to assume the 'del credere' risk. However, the agent is not liable for the risk in the case of non-acceptance of goods by a solvent buyer. Logically, in view of the liability in such an arrangement, the 'del credere' agent expects a higher-thannormal commission. The existence of the 'del credere' agent is only common in the United States. If it is clear that some time may pass before a product is established in the market, a retainer or fee may be paid to the agent initially to provide some financial inducement. However, once sales improve, the agent would normally be put on to a commission. Salaried salesperson Where a lot of non-profitable, pre-sales work, training, customer contact, etc. is involved, the most suitable method of selling is through salaried salesperson. The salesperson would have the authority to accept orders on behalf of the principal, who would meet all expenses involved. (S)he could work from home or from an overseas sales office. Independent salesperson This is a commercial traveller with his/her own area of retailers, wholesalers, or factories. The person would act on behalf of a number of different principals and can accept orders on behalf of each. (S)he does not get involved in the stocking, servicing or documentation of goods. This type of salesperson is suitable if there are only a few customers for any one principal and if, the goods are simple to understand and to sell. Agent/Distributor Here the agent works on a commission for, say, the sale of machinery, but works on profit basis for the sale and distribution of consumables or spares related to the product. The exporter is the contracting party with the customer for the machine, but the customer purchases the consumables directly from the agent in his/her own right Agent/Warehouse-person Some products require an approach to selling that is best suited to a commission agent but the agent must also provide warehousing facilities for which they are paid a fee. The agent takes responsibility for administering stock, keeping it under tight security and issuing regular reports on the stock situation. They can change prices if necessary and can also divide bulk supplies into more easily
distributable units. Agent/Servicing company Capital equipment, such as cranes and machine tools, cannot be bought by the agent and is handled on a commission-on-sales basis. However, these goods must be serviced and the agent guarantees certain minimum service facilities installation, maintenance, spares, and repairs - in return for a direct charge in proportion to the extent of the work involved. Agent/Design office Many products need a design service incorporated into the selling approach, e.g. factory flooring, air-conditioning and audio/visual equipment. The agent must have drawing office facilities where individual clients' needs can be worked out. This type of agent is paid for these services separately from the commission earned on the orders themselves. Often the installation is carried out by local contractors, or may even be organised and paid for by the customer. Agent/Customer Sometimes a major customer is willing to offer the exporter's products to other potential customers on a commission basis. Agent/Manager Often when selling to a developing country, it is important that the exporter has at his disposal a detailed knowledge of the market and the assurance that his affairs are being continuously managed at a senior level. This can be accomplished by a managing firm which will report on agents, supervise joint ventures, recommend new ways of entering the market and advise on a sales approach. Because of its local status, it can lobby authorities to prevent interference. Often it offers its own wholesale or retail outlets, or distribution networks for managerial services plus an agreed share of overall profit. Factory representative/Agent controller This is a salaried employee based abroad to supervise the marketing arrangement in a specific group of markets. Normally (s)he controls the local agent's operations, but does not actually sell to customers, rather accompanying the agent on key calls. Export management agency This agency acts as the manufacturer's export department either for all or for a selection of foreign markets. The agency familiarises themselves with the manufacturer's product range and pricing structure, and investigates potential outlets. They operate on a commission basis, or on fee plus commission basis. Representative purchasing for himself as principal Export merchant The export merchant purchases the goods from the exporter on his/her own account as principal, with the intention of reselling them at a profit. (S)he must then find the customer and take the financial risk. The manufacturer must ensure that they do not compete against the merchant's own sales effort. The agreement may have a clause to the effect that all orders from a specific sales area, whether or not placed by the merchant, will be credited to his/her commission account Distributor Distributors buy from the exporter to resell at a profit. They have exclusive right to market the goods in their territory. All orders must be channelled through them. The export merchant might purchase goods from the manufacturer and appoint their own distributors in different areas, giving them the right to resell, or they might act as distributors themselves. Stockist The stockist generally buys from the manufacturer, the export merchant or the distributor, reselling at a profit but qualifying for special terms by agreeing to hold minimum stocks to ensure prompt local supply. These special terms can be discounts or long credit periods or, as often happens, the exclusive stockist right in a specified area. Normally, they would not stock competitors' products. A network of stockists is essential if customers are to obtain ready supplies. Agent who assembles
When a firm wants to export goods that will require facilities for repair or maintenance and/ or when customers are dubious of the performance of the foreign goods, then often the answer is to set up an assembly organisation. The agent will purchase the goods - a German forklift truck, for example, minus the engine, hydraulic and electrical components. These parts may then be purchased from local manufacturers who have designed them specifically to fit the German chassis. The parts are easily replaced or repaired. The agent invests time and money in assembling the machines, generating income from the profit made from selling the final product. Often high tariff barriers are overcome by using a large proportion of local equipment/parts in the finished product. Representative acting for buyers who are the principals It is important to remember that there are buying representatives, as well as selling representatives. There are export merchants whose principals have asked them to purchase large quantities of goods on their behalf. The orders placed by representatives of the Japanese trading companies, for example, constitute more than 70 per cent of all Japanese imports. There are also commercial sections of embassies and foreign trade delegations which have instructions to locate suppliers of goods and equipment required by their nationalised industries. Buying office Many large companies, especially US department stores, set up buying offices in various centres that are identified as having profit potential. Usually the orders are large and the buying office arranges transport and ensures prompt payment. Buying house Buying houses place orders for both consumer and technical goods, and serve specific markets. They may combine the job of agent and principal depending upon whether they are ordering for clients as a service, or purchasing on behalf of parent or associated companies. Buying agent This type of agent offers services similar to those of a buying house and a buying office but to a wider range of principals. (S)he acts as host and documentation clearing house for visiting buyers of many countries. In order to get exclusive lines, department stores and fashion houses which are big buyers of foreign products, are often served by a buying agent. It would be difficult to acquire this type of service from a local agent who is intent on supplying as many customers as possible. Selling through a representative in the market It has been estimated that representatives handle more than half the world's foreign trade. There are three main types of representative: • Those that act for the exporter who remains the principal • Those that purchase for themselves as principal • Those that act for buyers who are the principals Whichever type of representative is chosen as an intermediary, it is necessary to enter into some sort of legal agreement protecting the rights of both parties concerned. Although such a contract is designed to govern disputes and protect each party's interests in law, it can serve as a plan of action for setting targets, detailing financial incentives and defining penalties (loss of rights, etc.). It can also be phrased in such a way that it is compulsory for an agent to bring in a certain percentage of business over a period or else face the termination of his contract. Licensing and franchising Licensing A licensing agreement is an agreement wherein the licensor gives something of value to the licensee in exchange for certain performance and payments. Usually what is transferred from one party to the other is some form of industrial or commercial expertise, such as: • A patent covering a product or process • The right to the use of a trademark or brand name
• Copyright • Manufacturing know-how on products or processes (that is not the subject of a patent) • Technical advice and assistance including (occasionally) the supply of components, materials, etc. which may be required in the manufacturing process • Marketing advice and assistance Payment for the expertise involved can take any or a combination of the following forms: • An initial payment, payable as soon as the licensing agreement is signed, either for know-how or for the initial transfer of machinery, components or designs • An annual minimum payment • An annual percentage fee based either on sales or on profits • A mutual exchange of knowledge and/or patents, i.e. cross-licensing Advantages of licensing There are numerous advantages in entering into a licensing agreement with a foreign national: • Licensing requires very little capital outlay (making it an accessible channel even to small companies) and it should provide a high rate of return on the capital invested • It provides access to markets which might otherwise be closed because of high rates of duty, import quotas or other restrictions, or because of excessive transportation costs • Should the licensing arrangement prove to be a failure, it will not result in heavy financial losses • The exporter does not face the risk of having assets nationalised or expropriated • The exporter gains access to the licensee's local marketing and distribution organisations, and existing clientele, thus avoiding many of the problems associated with setting up a wholly- owned manufacturing subsidiary • Many governments favour licensing over direct foreign investment because licensing brings technology into the country without the disadvantages associated with direct investment • Because of the limited capital requirements, licensing enables new products to be sold worldwide before competition develops Disadvantages of licensing Licensing, however, does have some disadvantages: • During the period that the licensing agreement is in force, the firm may transfer sufficient expertise to the licensee to enable the latter to set himself up as a competitor, not only in the original market but perhaps also in neighbouring markets or even in the domestic market • Licensing provides limited returns on the investment of managerial and engineering time - royalties and fees normally constitute less than seven per cent of turnover • Governments can impose restrictions either on the remittance of royalties or on the supply of components • It is often difficult to control the quality of the product which, in most cases, is sold under the licensor's brand name • Although the contract should specify the responsibilities of each party, misunderstandings and conflicts can arise during the implementation stage. Areas of conflict might include; the marketing efforts of the licensee, the interpretation of exclusivity and the extent of the licensee's territorial coverage Managing licensing operations The selection of the licensee is a vitally important step and a number of candidates should be identified and evaluated before making a final choice. Many companies - to their detriment - have chosen licensees by responding to an initiative from a foreign producer without considering alternatives. The licensing
agreement must be carefully drafted in order to protect the interests of both parties. It should include clauses relating to the duration of the agreement, territorial coverage, the royalty rate, protection of trade secrets, minimum performance, and quality control. The licensor should endeavour to maintain some control over the licensing operation by supplying some of the key components rather than exposing know-how entirely. Alternatively, provision can be made in the agreement for converting the operation into a joint venture on expiry of the agreement, avoiding the possibility of the licensee becoming a competitor. The firm should encourage effective licensee performance by assessing the ability of the licensee to solve production and marketing problems and by maintaining a flow of up-to- date technological know-how, thus ensuring that the licensee will continue to perceive value in the arrangement. Exporters must have both a policy and a plan for licensing, and must have an executive responsible for the implementation of both. Franchising Franchising is a form of licensing whereby the franchiser provides a standard package of components or ingredients together with management and marketing expertise, and the franchisee provides capital, market knowledge, and personal involvement. Franchising works well for products that are not subject to patents. Pepsi-Cola, for example, relies heavily on franchising. The franchise holders own the bottling plants, employ local staff and control their own advertising and sales promotion. Pepsi-Cola sells the concentrate to the bottlers and provides promotional and managerial support. Franchising holds the same advantages as licensing and creates the opportunity for revenue to be earned from a product that cannot be patented. A franchiser also enjoys a greater degree of control over the operation because they supply the ingredients or components. Contracting What is contracting? Contracting involves entering into an agreement with a company that provides your firm with a service. In the case of the market-entry options we have been discussing, this service would involve the contract to manufacture and/or market your goods in an overseas target market. Management contracts A management contract is an agreement whereby a company (the management company) manages some or all of the operations of another company in return for management fees and, sometimes, a share of the profits. Many hotel groups have management contracts with hotels in other countries and earn fees for consulting and for providing management services. With management contracts, there is minimal risk associated with market entry, no expropriation risk, and no need for capital investment. These contracts capitalise on management skills and provide a guaranteed minimum income. Manufacturing contracts Contract manufacture involves a formal, long-term contract between parties in two different countries for the manufacture or assembly of a product. The company that places the contract retains full control over distribution and marketing. There are a number of advantages to contract manufacturing: • As there is no need to invest in manufacturing plant, the company placing the contract does not need vast capital resources, nor does it have to be concerned about the possible political instability of a market • There is no risk of the company experiencing financial loss because of adverse movements in foreign exchange rates • The company placing the contract can avoid labour and other problems that could result from a lack of familiarity with the country concerned; at the same time, it enjoys the advantage of being able to advertise its product as locally made • Cost advantages could include savings in transport costs and lower
production costs • If a market proves to be too small or too risky, it is easier and less costly to terminate a manufacturing contract than shut down a wholly-owned offshore production unit Contract manufacturing, however, also has its drawbacks. It is often difficult to find a foreign producer with the ability to manufacture the product to the required standards and in satisfactory quantities; even when a suitable manufacturer is identified, the company placing the contract runs the risk of training a future competitor! You may want to consider the following factors when deciding on whether to go the contracting route. Manufacturing abroad Considering offshore manufacturing operations? If your company were considering the establishment of an offshore production unit as a market-entry channel, you would face a number of key policy decisions. These include: • How much to invest initially • Whether to manufacture abroad (you must decide where to locate the production facility) • Whether to establish a full manufacturing operation or to opt for an assembly plant • Whether the operation is to be wholly-owned or a joint venture • Choosing between acquiring an operation already in existence or establishing a new facility The initial international investment decision This is one of the most difficult decisions to make because of the relatively high level of uncertainty and risk involved. Not only are you likely to be hampered by a lack of familiarity with the foreign environment, but you are also faced with the prospect of high political and exchange risks. Calculating the likely rate of return on such an investment includes: • Estimating both current and future market potential • Estimating the share of the market the company is likely to acquire, as well as the resultant sales volume • Estimating both current and future production costs • Arriving at an anticipated profit margin by comparing sales revenue with costs; this profit margin should at least be equal to the domestic profit margin and should be high enough to compensate for the increased risk and uncertainty • The various areas of concern that might influence the decision to invest should then be investigated. Location of investment The decision regarding where to locate your manufacturting facilities will normally be closely linked to the initial decision to invest because of the multitude of factors relating to a specific foreign market that will affect that initial decision. Apart from investigating the suitability of already identified target markets for the positioning of a manufacturing unit, the advantages of establishing the plant in a third country might be worth considering. Apart from possibly giving the exporter free access to the identified target markets; it may also offer lower tax rates, lower wage rates and special incentives to foreign investors. Foreign assembly operations If opting for a foreign assembly operation, you would produce all or most of the product's ingredients or components domestically and then ship them to the assembly plant where the final stages of the manufacturing process would be completed. A local government requirement of most assembly operations, however, is that a significant portion of value must be added to the product in the market in which the assembly plant is located in order to enjoy 'country of origin' accreditation. There are numerous advantages to establishing an assembly plant. These include:
• Lower freight costs • Lower import duties • Easier modification of the product to suit local market requirements • Possible cost advantages - wage rates may be lower for the assembly operation and it may also be possible to purchase cheaper components from local sources • The ability of the company to create a national image in the target market • Access to government contracts and tenders • Foreign assembly operations allow exporters the opportunity to gain the initial experience in a market that they may later wish or be required to establish a full manufacturing operation International joint ventures An international joint venture in assembly or manufacturing is an operation in which two or more companies in different countries combine resources, not merely for manufacturing purposes but also to acquire marketing, financial and management advantages. All the participants in a joint venture have a share in the equity and a say in the management of the operation. However, no one participant holds a sufficient shareholding to exercise effective management control. Joint ventures are usually entered into when: • Total foreign equity ownership is not permitted by local law because governments feel their nations benefit more from profits and technology if their local nationals have a share in the business • Finding a partner in the target market may be the only way to invest in a market that is too competitive or too crowded to admit a totally new operation • It is important to quickly acquire either local marketing expertise or an established distribution network • The company does not have sufficient capital to fully exploit all potential markets • Managerial and other human resources are limited, e.g. In the case of small companies • The company fears expropriation or other risks of a financial nature • A company wishes to protect its sources of supply of raw materials Conflict can often arise between the partners in a joint venture because of differences in culture, business practices and management styles, as well as inadequate communication resulting from the problems of distance and language. Disputes are usually about the composition of the product line, the market coverage of the joint venture and whether not earnings should be paid out or ploughed back into the operation. To minimise conflict: • Carefully evaluate the prospective joint venture partners • Negotiate a joint venture agreement to the benefit of all concerned • Ensure that the agreement covers all eventualities that could possibly give rise to disputes and that it includes an arbitration clause or similar mechanism whereby unforeseen disagreements can be resolved Acquisition of a foreign company The acquisition of a foreign company involves the purchase of all or a majority of the shareholding of that company. The advantages of acquiring an alreadyestablished operation are considerable and include: • The company immediate gains entry to the foreign market, thus earning revenue from its investment immediately. • The company's initial investment provides not only manufacturing facilities but also established distribution arrangements, market knowledge and customer contacts, as well as trained and experienced local staff. • Be aware that local government incentives, often available for investment in totally new operations, are not generally available in the case of an acquisition. In addition, problems will invariably be encountered in the integration of a newly acquired foreign company with the cultural and management workings of the domestic firm.
You may want to consider the following factors when deciding on whether to go the contracting route. In-market distribution decisions Understanding in-market channels Once a market-entry strategy has been chosen to get your products into your foreign target markets, we indicated that the next challenge you will face will be distributing the product to the end user within these foreign markets which we referred to as in-market (or foreign market) distribution. Distribution systems vary significantly among nations whose economic, social and cultural environments differ from one another. Consequently, every product and country will present a unique distribution problem, the solution of which will require careful research (which you will have done as part of the export research you undertook in step 7). At the same time, your market-entry strategy will affect the in-market channel(s) you decide to use. For example, if you are selling through an import agent, once your product(s) reach the importer, the in-market factors come into play. These including answering questions such as: How the importer will get the goods to the end user? What transport will be used? Who is the eventual consumer? How long is the distribution channel? How many other intermediaries are there? Are the products being sold in other countries? What mark-ups are being applied and what costs come into play? Similarly, if you plan to use your own sales representatives or to sell directly to the end consumer or if you plan to franchise your goods abroad or license a foreign manufacturer to produce and sell your goods, whichever option you choose will translate into different in-market activities. Therefore, before you can begin to consider any in-market activities, you need to know which market-entry option you plan to use. The one, clearly, impacts upon the other. Don't forget that we metnioned that your in-market distribution channel will often go beyond just the physical movement of goods and may impact on other marketing decisions such as promotion and pricing (as your in-market partners or intermediaries make their own marketing and distributing decisions). What in-market factors are likely to come into consideration Assuming you have decided on a particular market-entry channel, there are many factors you will need to consider when looking at your in-market distribution alternatives. These include the following: • The number of intermediaries that make up the in-market channel • The mark-ups applied by these intermediaries • The services these intermediairies provide (promotion, sales, distribution, etc.) • The power and control of these intermediaries Channel design Channel design should be based on the evaluation of a number of market characteristics. These include: • The number, geographical location, purchasing patterns and purchasing preferences of customers • The bulk, weight, perishability, unit value and servicing requirements of each export product • The extent of the activities of existing intermediaries, e.g. In respect of physical distribution, storage, advertising, customer credit, selling, etc. • Whether competitors' channels can be used or whether they should be avoided, the degree of exclusivity offered to competitors by various intermediaries, etc. • Whether the government imposes any legal restrictions on the operations of channel members • The company's size, financial resources, product mix, previous channel experience and overall marketing strategy. In the course of your research (see step 7), problem areas will be identified. For example, channels adopted in other markets may be non-existent in the target market in question, few intermediaries may be available in many developing markets and those who are available, may be operating exclusively on behalf of
competitors. When barriers to normal in-market distribution are present, you may consider: • Taking over local distributors • 'Buying' distribution by offering financial incentives, e.g. high commissions on sales • Establishing your own distribution outlets • Developing a totally new channel, such as that developed by Tupperware, i.e. holding tea parties in the consumer's home at which the product is sold • The Internet, which is rapidly changing the various marketing channels exporters use The final choice of foreign market channel, whether of the traditional type or an innovation, will depend on the anticipated distribution costs, the degree of control that can be exercised over the channel, market coverage and the likely continuity of the distribution service over the longer term. Anticipated distribution costs These comprise the cost of the initial capital required for the development of a channel and the cost of maintaining the channel, e.g. agents' commissions, distributors' mark-ups, the cost of a company's own sales force, etc. Degree of control over the channel The degree of control that you will be able to exercise over the in-market channel will depend largely on your choice of channel and on your financial resources. Heavy advertising, for example, generates consumer demand and automatically draws products through the distribution chain. However, less affluent manufacturers should nevertheless endeavour to influence the intermediary's market coverage, prices, services, etc. Market coverage This may be on an intensive basis, i.e. the product is made available in as many outlets as possible, or on a selective basis, i.e. the product is made available in only a selected number of outlets often under an exclusivity agreement. the exporter may have difficulty in finding an intermediary who is prepared to handle all the products in the range - often intermediaries reject the less lucrative products. Channel management The selection of effective channel members in the foreign market is often a problem. Low sales volumes hamper many channel members or are under-financed and some simply cannot be trusted. Smaller distributors may close down when partners retire. Others may switch loyalties when a particular product line fails to give them lucrative margins because of adverse exchange rates or politically inspired consumer resistance. Frequently, when a manufacturer is not well-known abroad, the intermediary's reputation becomes that of the manufacturer - often with devastating effects. Screening likely candidates should involve: • Sending a letter, including product information and distributor requirements in the native language, to each prospect • Following up the best respondents to extract information that is more specific. This would include product lines already being handled, territory covered, size of operation, number of salespersons, etc. • Checking references from other clients and customers of the prospective intermediary • Where possible, visiting the most promising candidates in person Once a suitable intermediary has been identified, a distribution agreement should be drawn up. This would detail the specific responsibilities of both the exporter and the intermediary, and should specify an annual sales volume target. This target will serve as a basis for evaluation of the distributor and failure to meet it could give the exporter the right to terminate the contract. The role of the intermediary The marketing function of the foreign intermediary is multi-faceted. Thus, the intermediary could be involved in any of the following:
• Assembling products so that they form a range of complementary items that are likely to be of interest to buyers • Converting bulk items into smaller lots in accordance with customer requirements • Adapting goods to meet the needs of the marketplace • Organising the physical distribution of products, i.e. transportation and storage within the marketplace • Setting appropriate prices for the goods • Handling sales promotion and advertising • Identifying buyers and selling to them • Extending credit to buyers, where this is required. Motivating intermediaries Once intermediaries have been selected, a motivational programme should be instituted to maintain their interest in the product(s). Apart from financial incentives, the exporter might also provide: • Staff training • Advantageous credit terms • Company communication including company newsletters, web pages etc. • Visits by intermediaries to the company's headquarters • Visits by the company's staff to intermediaries' offices • Technical assistance and product support services • Adequate product information Terminating distributor agreements The exporter may wish to terminate a distributor agreement, perhaps because market conditions have altered, a intermediary's performance has not been up to standard, or company mergers have necessitated a change in distribution policy. Dismissing intermediaries is not an easy task because of the legal protection they enjoy in most parts of the world. In Norway, for example, the manufacturer must be able to prove the negligence of the channel member concerned and even if the dismissal is sanctioned, it is likely that the intermediary will have to be reimbursed for his investments in establishing customer contacts and creating goodwill. In other countries, a intermediary cannot be dismissed without the dispute going before an arbitration board to establish whether or not the relationship should be terminated. The customary practice, in case of a contact being terminated, is for the dismissed party to receive indemnity equal to one year's commission - an unexpected cost that could adversely affect the export marketing plan. To avoid such an eventuality, seek legal advice in each export market prior to drawing up a contract and should ensure that selection procedures are such that do not cause a predicament of this nature. Controlling intermediaries A high degree of control over international channels of distribution is particularly difficult because of the often lengthy channels involved. Some companies set up their own distribution systems to solve this problem while others issue franchises or establish exclusive distributorships. Control should be two-tiered: 1. Control over the whole distribution system 2. Control over individual intermediaries Overall controls need to be implemented for the entire system to ensure that the export operation meets both cost and market coverage objectives. Distribution specifics such as pricing margins and transhipping parameters should be clearly defined. Problems may arise, for example, when goods intended for one country are diverted through distributors to another where they compete with existing retail or wholesale organisations handling the same product. Marketing objectives have to be clearly spelt out to the intermediary. Standards of performance ought to include; sales volume objectives, expected market share in each market, feedback on inventory turnover ratios, the number of accounts per area, growth objectives, price stability objectives, and the quality and extent of
any publicity/promotion. The standards set should be specific and in writing to facilitate regular evaluation of performance. When standards are not met, the causes should be investigated. The influence of payment terms and Incoterms on distribution What do we mean by payment terms and Incoterms? Payment terms are the payment provisions (or details), that have typically been negotiated between the exporter and the foreign buyer, regarding the settlement of a transaction. These terms will normally indicate (or at least imply) the method of payment, when payment must take place, what credit is being allowed and for how long, and when delivery is expected. Click here(step 9) to learn more about payment terms. These payment provisions will clearly impact on distribution. For example, by setting the delivery date of the goods in an Letter of Credit will place certain time constraints on the distribution of the goods to reach the destination by the time and date specified. Selling on a consignment basis, for example, will also mean that you need to account for perhaps having to return the goods not sold to South Africa. What is more, you will need to pay for the distribution of the goods in advance and this may encourage you to choose the cheapest transportation alternative in order to keep costs down. In exporting, payment terms commonly incorporate one or other agreed-upon Incoterm (standing for international commercial term), such as EXW, C&F, CIF or DDP. Click here to read more about Incoterms. The purpose of these Incoterms is to spell out clearly where the responisbilities of the exporter and import lie in respect of distribution and payment. For example, with EXW (ExWorks), the exporter is responsible to deliver the goods at the factory door in South Africa, while for CFR, the seller is responsible for the goods until such time as they cross the ship's rails in South Africa (even though the seller - the exporter - pays for the freight). What is more, CFR is intend for ship transportation only. Clearly, depending on which of these two (or any other) Incoterms forms the basis of the payment terms, the distribution responsibility of the exporter will vary considerably. Thus payment terms and Incoterms directly affects the distribution function. Physical distribution and transportation alternatives Your transport alternatives We have said that one of the key distribution decisions you will need to make is how you will physically move your goods from your factory to the foreign customer (i.e. your choice of transportation method), and who will help with this (the transportation intermediary). In this regard, there are essentially four transportation alternatives available to you. They are: 1. Air transportation - One of the major ways of transporting goods overseas and especially well suited for small, light-weight and high-value goods. 2. Sea (or marine) transportation - the most common transportation method for the majority of goods moving overseas from South Africa and especially so for bulky and heavy goods. 3. Rail transportation - Clearly not appropriate for overseas transportation, but is common for moving goods into Southern Africa, as well as from the inland cities such as Johannesburg and Pretoria to the ports in South Africa. The differences in railway guages means that our railways cannot reach deep into Africa. 4. Road transportation - Road is the major competitor to rail transportation within South Africa and Southern Africa. Road transportation is also not appropriate for overseas transportation, but is the main means of transporting goods deeper into Africa. There are other transportation alternatives used elsewhere in the world In other parts of the world, you may come across alternative transportation methods. Barges are common in Europe and the US; camels, horses, donkeys and other pack-animals are often used to reach far-away places in the Sahara desert, places in South America and in Asia; bicycles are often the 'last mile' means of
transportation in Asia; while human-power is sometimes used in third-world countries. Courier companies In recent years, courier companies have begun to play an increasingly important role in distribution. In the past, courier companies were seen as 'parcel' companies. The collected a small parcel or package from your office and delivered it to some distant address (either in the same country or in some other country). The major players such as DHL, FedEx and UPS have become so good at their business and have built up such a massive logistical infrastructure that they can now deliver pretty much anything, anywhere. Today courier companies are striving to become the logistics arm or partners of companies who don't want to get bogged down with logistical issues. Through outsourcing, companies can reduce the cost and risk associated with the task of distribution. This is especially so in the case of exporting, and you may want to discuss with one or more courier firms how they might be able to help you with your export distribution. Although a courier company could be seen as another transportation alternative, they, in turn, make use of air, sea, road and rail services to deliver the goods. Transportation intermediaries - transport representatives Once you have decided on how to transport your goods to the end user, you also need to decide on who will handle or facilitate the transportation for you. Obviously, you could do it yourself and many medium-to-large export firms do have managers who look after their respective international logistics. They generally liaise and interact with the representatives of airlines, shipping companies, the railways (i.e. Spoornet), or individual road hauling firms. After all, these representatives of the transportation companies are there to help you choose the best transportation alternative to meet your export needs and will gladly advise you on how to overcome many of the problems you are likely to face. Transportation intermediaries - freight forwarders Notwithstanding their help, you may still want to turn to a freight forwarding company to look after these transportation matters for you. This may be a wise decision if you are not a regular or experienced exporter. Freight forwarders make their livilihood from faciliating the logisitics surrounding the movement of goods domestically and internationally. They usually have international partners that will handle the overseas component of the logistics on their (and your) behalf, and they normally offer and door to door services, thus taking a lot of the stress and problems associated with international logistics off your hands. The use of freight forwarders is perhaps is the most common way of facilitating international trasnportation. Transportation intermediaries - customs clearing agents Your freight forwarder (or your firm) may also make use of a customs clearing firm on the 'other side' to ensure that your goods are cleared through customs quickly and effortlessly. Customs clearing is can become a nightmare and there are firms that specialise in this service. They normally have a good working relationship with the customs authorties in the target country and they know the laws and rules intimately. They may even have an account with the customs authority and may be able to offer you payment terms that will help your cash-flow problems (although you should not expect this facility for the start - they will usually only offer you this facility after years of trading with you). Transportation intermediaries versus distribution intermediaries In the case of market-entry and in-market distribution, you will also make use of intermediaries such as import agents, distributors, wholesalers, or even retailers. These intermediaries clearly have an impact on not only your overall distribution strategy, but also impact on the physical distribution of your goods. However, they are different from the transport intermediaries mentioned above, as these distribution intermediaries also have a marketing function to fulfil and have more direct and greater impact on your distribution activities. The transportation intermediaries (transport representatives, freight forwarders, clearing agents, etc.) are more faciliators of the distribution proces have less
of a direct impact on your marketing strategy. The whole channel concept Some manufacturers, particularly of industrial products, need only be concerned with the problem of distribution channels between nations (market-entry channels) because their products are sold directly to the end-user, i.e. another company or a government organisation. However, other manufacturers face the additional problem of distribution within the foreign market. Where this is the case, the manufacturer should be concerned with the entire distribution channel (i.e. the whole channel), from producer to final buyer, whether an industrial end-user or consumer. Unfortunately, exporters who trade with a large number of markets frequently think that their task has been accomplished once they have delivered their goods to the foreign importer. They consequently ignore the subsequent distribution channels that link the importer with the final purchaser, with the result that less than optimal profits are achieved. Preparing an export budget for your firm Revising your initial budget You will recall that have already allocated a small budget in step 4 of the export planning process for your export activities to date. The purpose of this intial budget was to enable you to do the research and planning that is required to develop a viable export marketing strategy for your firm. Even this step - step 8 - still falls within the scope of this initial budget. However, the time has come to prepare a more substantial and longer-term budget to support your export endeavours. Once you have complete step 8 and outlined your export marketing strategy, you will then begin to put this strategy to work and will need more money to do this. Your budget must match the time frame of your export strategy Your export budget should prepared with a time frame in mind. If you believe that it will take 2-3 years to establish your exports, then you need a budget to support your export activities over this period. It is no use expecting to take three years to develop your export market, but then to budget only for one year. At the end of this year your money will inevitably run out and you will almost certainly have to find more money. However, your firm's circumstances and priorities may have changed and it may be difficult to set aside more money for your export activities for the next year (or two) at this time. This means that the focus will shift away from exports, resulting in the ultimate demise of your export endeavours. It is crucial, therefore, to allocate a realistic budget for your exports for the time period it will take you to establish your exports. Possible budget items The budget should include money for the following activities: • Export staff You need to budget for at least one, but probably more staff that will be allocated to handling the firm's export activities. Even if you plan to do this yourself, you need to attach a cost to your time, especially if it will take time away from your management or work activities (which it surely will). You may argue that you will do the export development work after hours and in the evenings, but this seldom is feasible. Exports require a lot of attention and you will find yourself spending more time on your export activities and less on your other work responsibilities. If you neglect your day-to-day work, you may find that your business suffers as a result. It is wise, therefore, to consider appointing an export admininstrator; someone that can take care of most of the export activities that you will be required to do. Not only do you need to budget for this person, but you should also allocate a cost to (and budget for) your own time that will spend on d eveloping your firm's exports. This need not be a senior position - only someone reliable and hardworking that is interested in international affairs and has some international 'commonsense' (e.g. knows where countries are located and has perhaps travelled overseas and or has some interest in international affairs). It is really important that the person
you choose is good; this person will in some instances need to be able work on their own initiative and must be self-driven. They may have to do some administrative work, some online research, communicate with intermediaries, trade associations and potential customers, organise trips abroad and perhaps even arrange participation in an overseas trade fair. As your exports begin to grow, you may need to appoint additional staff. For example, you may want to appoint a export marketer who will help you develop your export markets and you may need someone to focus on the export logistics, and still another to concentrate on export payments, assuming that your exports grow large enough to warrant this staff. • Export resources Creating a small export department will mean that need to allocate space for the department even if it is only for one person. Allocating space underpins the idea of an 'export department' and gives legitimacy to your firm's export endeavours. You will need a computer, a fax machine, a telephone, a printer, a photocopy machine and other tools of the trade. Fast internet access is essential (perhaps an adsl line) and your telephone and fax lines must be able to dial international. You also need to set budget aside for international communications - phone calls, faxes and courier services. • Export travel It is very difficult to develop export markets without travelling abroad. Overseas buyers normally will want to meet the people they do business with and travelling abroad shows commitment on your part. It also gives you the chance to better understand the market you will be operating in and perhaps to participate in a trade exhibition. It is difficult to say how many trips you will need to undertake, but at least one is essential. I believe two trips a year is probably adequate and desirable, and even more may be necessary depending on the markets you are concentrating on and the products you are marketing. • Export marketing expenses This will be one of your biggest outlays. You need to budget for brochures, redevelopment of your website, a promotional CD perhaps, as well as for other promotion materials (printing of new internationally-orientated business cards, for example). Don't forget, you may need to translate these materials into other languages and this can be very expensive. The budget for the any trade fairs also falls under marketing, but because we see trade fairs as being so important, we highlight this expense separately below. • Participation in a trade exhibition A trade exhibition as we have said is an excellent way of marketing and introducing your product to the foreign marketplace. I believe that participating in an suiable exhibition will generate a lot of good publicity for your firm and is one of the best marketing avenues available to you in exporting. Trade fair participation is not cheap, however - see the section on trade fair budgets. I would also only participate in a trade fair once I have done some preliminary marketing to raise the awareness of my firm. It is likely, therefore, that trade fair participation may come in the second or third year of my export schedule. • Additional export research Your research activities never stop and you need to allocate some money for this research. It may be as simply as buying one or two international research reports that have already been compiled about the global market for your sector, or it may mean undertaking more specific marketing research to establish specific customer requirements or trading opportunities/impediments. You may also want to build up an export trade library and buy export directories and similar publications. • Export logistics Once your exports begin to grow, you will need to budget for freight forwarding, insurance and other logistical and documentary matters. Clearly, these costs form part of your export costing and are worked into the export price. You may, however, need to allocate a substantial sum to pay upfront for these expenses, especially the first time. Thereafter, they becoming a typical cost item.
• Product redevelopment expenses We have pointed out that it is highly likely that you will need to do some redevlopment of your product to meet international requirements. This may involve additional R&D, production-line adaptations, creating and printing new labels, developing new packaging, etc. Some of these changes may be very expensive and you will need to allocate a budget to undetake them initially even if you expect to recoup your expenses from your exports eventually. Outlining an implementation schedule for your export activities Time frames and schedules are key to the successful implemention of export strategies An important part of your export strategy is setting the time frame for undertaking the various marketing tasks you have set for yourself as part of the strategy. Without an implementation schedule, your strategy is endless and doomed to failure as you will inevitably put off things for later. A schedule will force you to do the tasks you have set for yourself by a certain date. The schedule needs to be flexible and regularly revisited Clearly, not every task will always be achievable within the time frame you have set for yourself and there may be many impediments and delays that you encounter. For this reason, you should revisit your export plan regularly revising both the strategy and the implementation shedule with any new developments affecting your export activities in mind. What should be in the schedule? As every firm will face a different set of export tasks, it is difficult to provide a generic export schedule. However, we can suggest the following: • When will your export strategy be read for implementation? • Do you need to adapt your product, packaging and labelling in any way and if so, how long will this take and by when should it be ready? • By when will your export price list be complete and published? • By when do you need your export brochure/catalogue or any other marketing material ready? • By when will your website need to be ready for exports? • When is the next suitable exhibition taking place in your target market? Is this exhibition an annual one and will you take place each year? • When do you plan to go abroad again? Will you go abroad once or twice each year? When is the most suitable time to go abroad and will you link your travel abroad to an exhibition? • When will you appoint an export assistant? • By when do you expect to get your first order? It is suggested that you work on a three-year time frame. You should not be over confident of generating export sales much before the end of the second year. Strive towards obtaining your first order towards the latter part of year two and generate further sales (a) from other clients and (b) from your first client in year three. Bear in mind that in countries such as Japan it may 5-10 years before you manage to pentrate this market. Set yourself realistic time frames therefore! Preparing and presenting your export plan It is essential to formulate your exporting strategy in a written document - the export plan As with your export research report, you need to formulate your export strategies in a clear way, accompanied by a budget and time frame. This written document becomes your export plan. Within the plan will be outlined your export strategies. It is essential that you commit your thoughts to paper. Trying to run an export business off the top of your head, is sure to lead to failure. A written plan: • Is likely to bring clarity to your export actions, enabling you to explain how you link your planned actions to market and customer needs • It brings a degree of formality and seriousness to your export endeavours (if you aren't serious enough to prepare a plan, you can't be serious about exporting!) • Is more likely to be approved by management and encourage them to commit the
necessary resources (capacity, financing, staff, etc.) to developing exports • Can be used at banks and other institutions to obtain finance • Provides a common frame of reference for all involved in the export activities of the firm (e.g. directors, production managers, finance managers, human resources, export staff, yourself, etc.) • Serves as a benchmark for measuring success • Is dynamic and can change to adapt to varying cicumstances Preparing the export plan The export plan, like the export reseach report, needs to be prepared as a formal report. The proposed outline of this report can be viewed here. The plan should be professional laid out and several copies made for distribution to all relevant parties (directors, managers of human resources, finance, production, etc., as well as to export staff). Support the content of the report with graphs, tables and photographs to enhance reading. Presenting the export plan If you are the owner of your own business, it is unlikely that you will need to present the report for approval, but you may want to present the report to obtain your staff's support and to give them some direction as to where you hope to take your new export endeavours. In a larger company where you are in charge of exports, you may have to present the report to obtain management's commitment and financial support. You may also need to present the report to your bank in order to obtain additional financing and so both the report and your presentation needs to be of a high standard. Whatever your position, a formal, written plan is key to the future success of your export endeavours. Obtaining approval for your export plan You need written approval before moving on Before you can move on to implement your export strategy, you need formal approval of your export plan. It is not enough to to accept a verbal or implied approval. This will almost certainly lead to problems down the line. The best means of obtaining this approval is to present management or your board with a preprepared statement of approval which says that they have considered your export plan and hereby give their approval to the plan and agree to commit the resources outlined in your plan to the firm's export endeavours. The plan should also commit you to some action and should therefore indicate briefly (as a summary of what is in the actual plan) what you intend to achieve, by when, how much it will cost, when you you expect to achieve your first sale and by when you expect to recoup your investment in exports. You may be required to revise the plan If management are not prepared to approve the plan, then they should indicate what they want changed or agree to abandon the firm's export endeavours - you will not succeed without this approval! A reluctance to sign the approval document is already an indication of a reluctance on their part to move into exports. If they have valid comments or suggests or concerns, that's fine. Go back and revise your plan addressing these issues. The firm may not have the cash available to support your export endeavours and may first require to source external financing for the export venture. Or there may be other problems they foresee. Once you have addressed these, adjust the export plan accordingly. Indicate in a covering letter what you have done to address their concerns and what you have changed in the export plan itself. Again, seek their approval and ask them to sign the statement of approval. They may raise further issues, which, as long as they are reasonable , you may need to address. There may be a bit of backwards and forwards in terms of returning to revise the export plan and then going back to management to seek approval for it. After the third or fourth time, however, if you still haven't obtained approval, you may want to suggest to them that there are simply too many concerns or problems and that they should consider abandoning their export drive (notice I say 'their export drive' - you should from the start make this 'their' initiative; this will encourage them to take ownership, which you will need if you are to succeed).
I am the person that decides! What do you do if you are the owner of the business; you have prepared the export plan yourself and theoretically, there is no further approval you need; you decide, after all. We nevertheless recommend that you prepare a short statement indicating your commitment to executing the export strategy as outlined in your documented export plan. This commitment needs to be documented as a short statement supporting the exectuion of the export strategy and should be made available for the relevant persons who will be involved in your export activities (e.g. production manager, finance manager, etc.) to see, so that they can prepare themselves and also commit themselves to the firm's export endeavours. Giving your written commitment to your export plan and making this known to others in the firm, simply re-enforces your seriousness to developing your export business.
………………. Step 15: Producing the goods Introduction In step 8, we dealt with a whole host of product issues that you need to address. These included the following: • The adaptation versus standardisation of your product • New product development • Eliminating obsolete products • Product design and quality • The production process • Product brands and trade marks • Product packaging and labelling • Product servicing In your export plan you will have addressed these product issues, starting with whether you intend to follow a product standardisation or adaptation approach. In most cases, at least some degree of adaptation will be necessary. This will mean that you may need to redesign your product and adapt your manufacturing process to deal with such product changes. Another reason for improving the manufacturing process may be to ensure improved product quality, productivity and to achieve cost reductions. You may also have to submit your product to the standards authorities in your target market in order to obtain approval and certification of your product. Bringing about product adaptions is a team effort Most of these actions you will not be able to do on your own. You will need to work with your production team to put these changes into place. If you do not have a design team, consider approaching a design school at a university and asking them to tackle the redesign of your product as a project. You may be pleasantly surprised what innovative designs the students may come up with and it may only cost you a relatively small sum of money for a prize that you award the winning design. As far as your production process is concerned, you may want to contact the National Productivity Institute and the South African Society for Quality for advice and information. You will also need to get together with your production manager and foreman and perhaps brainstorm how you might improve your production process. Packaging and labelling are also issues that you will need to deal with and again you might consider turning to university design students to help you. Alternatively, there are several design organisations that could help you. Click here for more information. What comes first - product changes or promotion One of the more difficult issues to explain is whether you should first focus on the product adaptation before promoting your product in your target market or visa
versa. If you adapt your product first, you find that there is no call for your product overseas and that all of your product redevelopment effort has been wasted. Alternatively, you may promote your product to customers and then suddenly get an order. At this point, there may not be enough time to still modify your product and you again find yourself in difficulties. The answer is to first consider your product adaption as an overall improvement also for the domestic market. Thus any redesign, quality improvements and workflow or manufacturing improvements that have a positive impact on local sales, should be implemented in any case, whether you get export sales or not; these changes will good for business generally. These changes to your production activities can take place concurrently with your export marketing effort. If generate no sales, the changes will still be of value to your firm. As far as any changes that are export specific (for example, new labelling and packaging, or product modifications only of benefit to the foreign marketplace), should be prepared for in antiicpation of obtaining an order, but not implemented until you receive an order. You may want to negotatiate slightly longer delivery terms with your customer, explaining that you still need to implement certain modifications to the product. The customer may be understanding of your plight and agree to wait a little longer for delivery. It is with this thinking in mind that we first discussed promotion (step 10) and then, later, production (step 15 - this section that you are currently on).
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