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

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

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Export Tutorial: Part 3 (1/3) – Export Strategy Export Strategy Contents Developing Export Strategy Direct Exporting Manufacturer’s Representative or Sales Agent Foreign Distributor / Importer Overseas Retailers Central Trade Offices and Trading Companies Indirect Exporting Domestic Intermediary Export Management Company (EMC) Export Trading Company (ETC) Advantages of Using EMCs / ETCs Potential Disadvantages of Using an EMC / ETC Overseas Intermediary Licensing Franchising Contracting Other Intermediaries Piggyback Marketing Export Merchants Corporate Presence Alternative Distribution Approaches Joint Ventures Strategic Alliances Subsidiaries Finding Trade Leads Government Agencies & Sources Unites States Department of Commerce (DOC) Unites States Department of Agriculture (USDA) Unites States Agency for International Development (USAID) Unites States Trade Development Agency (USTDA) Page 2 .

com Page 3 .Export Tutorial: Part 3 (1/3) – Export Strategy State and Local Governments Private Agencies and Sources Television and Motion Pictures Electronic Media Finding an Overseas Representative Agent or Distributor? Use and Agent Use a Distributor Compile Potential Representative List Government Assistance Programs Private Agencies and Sources Electronic Resources and Other Media Contacting Potential Representatives Evaluating Potential Representatives Background Information on the Representative Third Party Evaluations Bank and Trade References Current Business References World Traders Data Report and Commercial Credit Reports Draft and Execute Agreements Managing and Motivating Distributors Quality Products and Exclusivity Quality Products Exclusivity Sales.exportcourse. Prices and Profit Potential Pricing Effective Communications Periodic Visits Updates Correspondence Training After-Sale Service Collaborative Work Effort Recognition and Sales Conferences Recognition Sales Conferences Traveling to Overseas Markets Travel Documents Medical Preparation www.

Trade Missions.Export Tutorial: Part 3 (1/3) – Export Strategy Cultural Factors Target Market Distinctions Cultural Business Variables Cultural Negotiating Travel Tips Promoting the Product Campaign Control Centralized Promotional Efforts Decentralized Promotional Efforts Means of Advertising Direct Mail Media Advertising Trade Fairs. and Catalog Exhibitions Multilateral Development Banks (MDB) Web Marketing: Search Engine Optimization (SEO). Search Engine Marketing (SEM) Page 4 . Social Media / Social Networks www.

This is true in the Middle East. exporting directly and indirectly. representatives will be servicing both domestic and import accounts. Central America. whereas it is your responsibility to check credit and arrange payment terms. Other direct exporting options include using a variety of export intermediaries. Manufacturer's Representatives or Sales Agents Generally.This section explains foreign market entry issues such as finding and developing trade leads. managing and motivating distributors. but you could lose substantial control over the marketing process. The indirect methods of market entry usually require less marketing investment. you may also use an export manager to handle other sales approaches. In addition to selling directly to your targeted market. you must use a local agent or representative. www. Direct Exporting You can sell directly to customers in foreign markets by opening an export sales department. but your degree of control over export strategies is greater. Corporate presence is an option for companies with successful test marketing. In some countries where you cannot sell directly to the end-user. promoting your product and traveling Page 5 .exportcourse.Export Tutorial: Part 3 (1/3) – Export Strategy Developing Export Strategy 1/3 Your company should develop a method of market entry . pursuing international bid opportunities. representatives or sales agents refer to a person responsible for closing the sale and taking orders on a commission basis. and they assume no risk or responsibility for the product. which creates an opportunity to establish a closer relationship with the overseas market and buyer. They do not take financial responsibility or collect payment for the sales. as well as selling complimentary lines that do not compete and they utilize the product literature and samples that you supply. Direct exporting may necessitate larger capital investment in marketing. product control and organizational goals. and in some Asian countries. A representative will want a contract from you for:  Guaranteeing territory  Exclusivity  Method of compensation  Term of service  Representation of the product line for a definite period of time In most instances. Each of the general categories listed below come with their own unique trade-offs between financial risks. Their primary interest is to make the sale.

Avoid using the term agent. Central Trade Offices and Trading Companies Buying offices or central trade offices are often divided into industry groups that buy for the whole country in some of the few remaining controlled market economies. set market trends for Japan's internal and external trade. Major trading companies usually have offices in www. but complementary products. and services their account with follow-up channels of communication. often called Foreign Trade Corporations. In general.Export Tutorial: Part 3 (1/3) – Export Strategy There is some controversy over the term agent. Product sales are usually limited to consumer goods that can be sold at a lower price. Overseas Retailers Selling directly to a foreign retailer relies mainly on travelling sales representatives. which reduces the risk of bargaining with lower level officials who do not have ministry approval. Any contract should clearly indicate legal authority of the representative to obligate the firm. Payment terms and length of contract are usually initiated with a short trial period. Chinese trade organizations do most of the negotiating and contracting. They may buy for the whole country or for regional groups and provinces. Depending on the country. It is recommended that you sell to the retailer at a price flexible enough to allow you to pay a representative in the future. Another distribution alternative uses overseas buying offices of domestic retailers. the term carries a rather broad interpretation of legal responsibilities involving the agent's independent activity to contract on your behalf without your instruction. Foreign Distributors/Importers Foreign distributors purchase the product and are always responsible for payment of the goods. Investigate this option if your product requires maintenance or spare parts. These companies can be a valuable resource for businesses who want to participate in the Japanese market. They assume financial risk and generally provide support and customer service They often buy to fill their own inventories and typically carry a range of non-competitive. Distributors should maintain adequate facilities and staff for after-sale service. and brochures can also reach the marketing base of foreign retailers and they reduce the cost of travelling. Native to Japan. These buyers can also be a practical source of foreign distribution for American manufacturers.exportcourse. Print-based selling techniques using catalogues. called "Sogo Shoshas".com Page 6 . some distributors have been known to buy products they purposely don't sell to check competition. China is the largest controlled economy that maintains trade and buying offices. Territory exclusivity is normally required by distributors. Beware. reflecting the absence of a representative's commission. product literature. general trading companies. stores are more willing to select the service of a representative who places the order for them.

there is less responsibility on the part of the ETC towards the supplier and they tend to be demand driven and transaction oriented.Export Tutorial: Part 3 (1/3) – Export Strategy the U. Usually. depending on the arrangement between the EMC and the manufacturer. they must balance the product lines they represent. along with detailed paperwork. There is legislation that promotes the use and formation of an EMC or ETC by providing the EMC/ETC with immunity from prosecution from antitrust regulations. In addition. sale by the exporter through an intermediary may be a better alternative to the complex tasks and risks involved in direct exporting. they may have to send a sample to Japan for final approval. www. The ETC is more likely to take title to the product and pay you directly. Domestic Intermediary Export Management Company (EMC) An Export Management Company (EMC) functions as an "off-site" export sales department. EMCs search for business for your company and usually provides the following services:  Perform market research and develop a marketing strategy  Locate new and utilize existing foreign distributors or sales representatives  Function as an overseas distribution channel or wholesaler  Take title to the goods and operate on a commission basis Note: EMCs may or may not take title to the goods. Product diversification is essential to protect against radical foreign market changes and maximize economies of scale. There are special certifications and requirements. In contrast to an EMC. representing your product along with various non-competitive Page 7 .exportcourse. Indirect Exporting While direct exporting may be a profitable method of foreign market entry for some businesses. Allow time for product transportation and evaluation.. with specific responsibilities and obligations.. however. Export Trading Company (ETC) Export Trading Companies (ETC) are very similar to. but like an EMC. an ETC is a legally defined entity under the Export Trading Company Act . an ETC is very difficult to set up.S. they can also act as an export department. Officially. It permits banks to invest financially in EMCs/ETCs and reduces restrictions on trade financed by financial institutions.EMCs.

 Opportunity to study the methods and potential of exporting. Overseas Intermediary Licensing Licensing offers the advantages of rapid foreign market entry and reduced capital requirements to establish manufacturing facilities overseas. patents. Important considerations:  Protect trademarks and intellectual property by securing proper patent and trademark registration before signing a licensing contract. they buy and sell goods on their own behalf for their clients.  Competition from the EMCs/ETCs other products.  Make sure agreements are not in violation of the host country's existing trade/product regulations or restrictions. www. copyrights. consider the following pros and cons.  Reluctance of some foreign buyers to deal with a third party intermediary.  Expertise in dealing with the details of exporting. designs. Potential Disadvantages of Using EMCs/ETCs  Loss of control of the export strategies and quality control of after-sales service. as most firms give priority to their domestic problems.  Added costs and higher selling prices because of gross profit margin requirements of the EMC/ETC. A license is a contract to identify what part of the licensor's trademarks. and know-how are being licensed.  Better focus on exporting.Export Tutorial: Part 3 (1/3) – Export Strategy An example of an ETC is Mitsui.  Possibility of the EMC/ETC neglecting the client's product in favor of other products that might be more profitable and easier to sell. Before deciding to use an EMC or ETC. as well as its strategies.  Lower out-of-pocket expenses.exportcourse. Advantages of Using EMCs/ETCs  Faster foreign market entry in terms of first recorded sales. unless the economies of scale can be used to off-set this Page 8 .

com . Most companies already have successful domestic operations. with the most popular franchises occurring within the restaurant and retail sectors. Important considerations: How much intellectual knowledge should you deliver to the manufacturing firm to make contracting possible?  Quality control at overseas production facilities. the franchise industry accounts for approximately 40% of all retail sales in the U. as opposed to exporting. However. Despite the recent slowdown. Although it is a method of indirect distribution to foreign markets. As an easy foreign market entry method since your manufacturer is already producing your product for their domestic market. global expansion has occurred in nearly every world region. www. Japan. Australia and Asia are increasing their franchise development. Franchising According to AZ Franchises. Contracting Agreements with foreign manufacturers to produce your product. cultural or economic conditions. McDonalds and Coca Cola are prime examples of success. largely due to its location. Although the major disadvantage of licensing is the possibility of losing control over manufacturing and marketing. sometimes you can learn much more from your licensees by giving attention to original product improvements. the overall investment by franchisers is much less than for company-owned sales outlets. since it is the company's reputation and existing market relationship that adds value to the product.  Third party disclosure of confidential product information. it does not address sales and marketing issues of the finished product. are referred to as contract manufacturing. it can also be the initial instrument used to create a subsidiary company overseas. With almost any overseas arrangement. Page 9 . The United Kingdom claims over 2500 franchise operations. Canada is also a high-ranking country for goods sold through franchise outlets.exportcourse. Franchise agreements tend to give the franchiser more control over marketing.Export Tutorial: Part 3 (1/3) – Export Strategy  Don't wind up as competitor to your own product by having your own design or know-how licensed in a foreign marketplace where you are already exporting. distribution approaches must incur expenses to support foreign marketing such as advertising.S.  Lack of control over geographical.

However there are alternative approaches to foreign distribution. Export Merchants These remarketers purchase and then re-package products (usually under their own label) to establish exclusive markets and customers. Permitting another company to market your product or service along with its own is called piggyback exporting.  In some countries. contract manufacturing accommodates company management roles in the foreign operation. The main disadvantage of using export merchants is that you could lose control over product pricing and marketing in overseas Page 10 . whose first language is probably not English. This type of exporting works well with accessory type products (computer hardware/software) or follow-up services where a third party adds value to the distribution system by offering a more complete solution to the foreign market. Other Intermediaries Piggyback Marketing A company that already has an export distribution arrangement established may need to provide other goods or services to supplement the product. Regardless of these disadvantages. The territories the remarketer's products reach out should be tracked to avoid interference with current export activities. a joint venture is the only way a company can set up operations. www. they will have to interact with entirely new management. Corporate presence decisions that involve the establishment of a foreign subsidiary as the primary method of selling overseas are on the rise for both small and large companies. the contracting manufacturer will have knowledge of the foreign market as well as the business and political contacts to facilitate market entry. However.exportcourse. Corporate Presence Entering a foreign market by establishing an overseas presence requires careful planning and legal guidance.Export Tutorial: Part 3 (1/3) – Export Strategy In contrast to licensing. Unique features of joint ventures:  Joint ventures can be equity or non-equity partnerships. Alternative Distribution Approaches Joint Ventures Joint ventures bring together two companies from different countries with similar goals to establish a market entry and a distribution network.  Host country laws often require a native citizen to have a percentage of ownership. Each partner brings specialized skills that make significant contributions to manufacturing and distribution capabilities.

and foreign relations. other than joint ventures or subsidiaries. in a joint venture agreement. However. technology transfer. It has a well structured purpose. regulations and taxes. Expert legal advice is recommended to determine true advantages of the subsidiary agreement within the laws and customs of the host country. For example.Export Tutorial: Part 3 (1/3) – Export Strategy  Both partners make substantial investments into the venture.exportcourse. Companies that form strategic alliances do not necessarily create an independent business organization. patents. shared management strategies and financial goal. Subsidiaries In contrast to joint ventures. Unlike licensing. There are also several forms of tax advantages or waivers offered by foreign countries for joint Page 11 . Subsidiaries are treated the same as host company operations in terms of benefits. Their technologies. subsidiaries guarantee control over all decisions involving marketing and production. There are favored places in the world to consider for jointly or wholly owned subsidiaries and manufacturing facilities. or combination of the following agreements:  Intellectual/Technology sharing  Cross-licensing  Distribution arrangements  Equity  Product development coordination Many small businesses view strategic alliances as an alternative to capital intensive investment approaches to foreign market entry. trademarks. your company is in a position to expand resources. export experience and market knowledge while spreading the risk and laying a distribution framework. Factors to consider range from low labor costs and government regulation to tax and economic incentives. Strategic Alliances Strategic Alliances is a broad term used to refer to alternative alliances. An alliance is a form of presence overseas that represents more than a simple buy/sell agreement. and know-how have the maximum protection available under the host country's laws. www. joint ventures require a direct investment for management. training. a strategic alliance may take the shape of any one.

including the Internet. These are often available from a variety of government. Washington D. and program experts. N. administers export financing and market development programs. www. analyzing. Government Agencies and Sources The primary avenue for leads in the government sector is from agencies of the Federal government such as the Department of Commerce (DOC). However.W. FAS seeks improved market access for U. Government agencies and sources are available from federal.. If the buyer or end user is readily identified. Up-to-date lists and specific dates are available from the nearest Commerce district office. distributors.. fastest growing. this is simple.. products. telephone (202) 482-2505 or 1-800-USA Trade.C. provides export services. sometimes it is necessary to identify leads for the required buyers. other agencies may be more appropriate resources for your product and should not be neglected. public and private databases. United States Department of Commerce (DOC) The Department of Commerce (DOC) identifies and qualifies leads for potential buyers. programs. distributors. although not as extensive. Most of the government sector activity is confined to the federal level.Export Tutorial: Part 3 (1/3) – Export Strategy Finding Trade Leads After deciding your export methods. trade trends. such as Promotion Service Centers. Additional sources are available through state and local governments. particularly the DOC. For California exporters. represent the newest. and traditional media sources. distributors. United States Department of Agriculture (USDA) The Foreign Agricultural Service (FAS) of the Department of Agriculture (USDA) is responsible for collecting. joint venture partners and licensees from both public and private sources. Many of these services are available at little or minimal charge. Trade Promotion Service Centers can provide counseling and resources to help you find trade leads and distributors. and the Trade Information Center of the Department of Commerce (DOC) at 1-800-USA-TRADE. and potential joint venture partners and representatives. country. Also. or joint Page 12 . You can also contact the Export Promotion Service. In addition to its own product. carries out food aid and market-related technical assistance programs. you need to develop leads to opportunities with end users. U. publications and trade shows. trade shows. business associations. and provides linkages to world resources and international organizations. Electronic sources. and disseminating information about global supply and demand. The DOC coordinates services. Private agencies and sources include chambers of commerce.exportcourse. state and local agencies. products.S. and potentially most promising mechanism. and electronic resources. S. Department of Commerce office at14th Street and Constitution Ave.S. representatives. the DOC utilizes an established network of commercial officers located in countries that represent 95% of the market for U. and market opportunities.

S.Visit their web site for more information about their services.S.S. expertise. a database of previous contacts and interested parties are maintained by state and local government agencies from their prior activities. exports. Opportunities are available for the export of commodities.Export Tutorial: Part 3 (1/3) – Export Strategy FAS utilizes an organization of embassy officers and attaches. This provides opportunities for analysts. State and Local Governments Many state and local governments will provide assistance to potential exporters although this will vary by locality and product. goods and services. For more information contact TradePort. www. Some of them fund printed and electronic materials. those involved in the program obtain a "leg up" on competition through the development of market expertise and contacts.S. analyses. United StatesTrade Development Agency (USTDA) The Trade Development Agency (USTDA) is an independent government agency that funds feasibility studies. and training programs in emerging overseas markets and Eastern Europe. The U.S. the use of USAID funds overseas opens avenues for the purchase of U. As such.  Mission Planning Assistance and Introductions: frequently available at the state level in conjunction with trade shows arranged to showcase a variety of goods and services native to that state. TDA activity is primarily oriented to determining the viability of markets available for U. trade officers. S.  Promotional Assistance: many state and even local governments realize the benefits to their economies by promoting exports. There is often a specific alliance between certain state and local governments and specific overseas counterparts such as "sister cities. United States Agency for International Development (USAID) The Agency for International Development (USAID) is responsible for the majority of the U. Exporter Assistance . services and Page 13 . Its contracts have to be assigned to U. and equipment. Foreign economic assistance programs. Additionally.Partners and Trade Leads program is very useful to grow a business. consultants. Additionally. and managers. it offers a conduit for the export of U. companies.  Existing Contacts: as with other government agencies." Services often include:  Trade Leads: usually available from agencies of state and local governments.exportcourse. host trade shows and support trade missions. analysts and marketing specialists to provide a wide range of services.

exports.  Telephone Books: can often be obtained through an embassy or banking contact if a specific target market has been selected. with existing relationships and firsthand experience may give personal recommendation or introductions to prospective representatives.S.  Posters and Billboards: in many countries. www. distributors. taxis. These include:  Banks and other financial Institutions: most larger banks and financial institutions are now multi-national. buyers. and they maintain a database of contacts for those interested in U. billboards.exportcourse.  Business Colleagues. and ads on buses.  Brochures and Catalogs: exhibiting your company and/or products not only provide information but can also promote through a variety of other sources such as trade shows.  Trade and Industry Associations are an excellent opportunity to share information and contacts with those having similar interests. and direct mail or contact with buyers. they maintain "sister" relationships with overseas chambers in se they place ads in trade journals. representatives.  Trade Shows and Missions to not only share information with other exporters.Export Tutorial: Part 3 (1/3) – Export Strategy Most of the government sector activity is confined to the federal level. Private Agencies and Sources Existing business relationships and associations provide another avenue to making export connections and obtaining leads. particularly the DOC.  Export Seminars: oriented towards exporting offer yet another opportunity to meet like-minded and experienced producers as well as develop additional expertise. Page 14 . Other agencies may be more appropriate resources for your product and should not be neglected. have correspondent relationships with overseas counterparts.  Chambers of Commerce are normally involved in trade shows and missions.  Trade Directories: Publications such as Trade Directories of the World by Croner Publications provide lists of trade associations and facilitate contacting established entities interested in exports/imports. These can frequently provide leads and introductions to overseas markets. or distributors. but provide the opportunity for direct contact with interested buyers. or maintain a department to handle foreign financial transactions. posters. or representatives. catalog shows. particularly Latin America. Frequently.  Foreign Trade Association Newsletters: the correspondence available from overseas can also provide leads regarding perceived needs and requirements in those markets. and sports arenas serve well to advertise the benefits and availability of your product.

 Decide if you need an agent or distributor. you must decide if you want to sell through an agent (often called appointee) or a distributor (also called dealers. commodities brokers.  Contact potential representatives describing your intentions. capabilities. you need to locate. There is a substantial difference between the two categories both legally and functionally. Electronic Media Electronic formats have the potential to accommodate all and replace many of the existing ways to locate leads. www.Export Tutorial: Part 3 (1/3) – Export Strategy  Miscellaneous Contacts: sometimes contacts can be made through unexpected sources such as freight carriers. and selection are critical to the success of your marketing effort.  Current methods of telecommunication permit the interactive review of products and their features with potential leads. evaluation. and others can be a valuable source of information. airlines. A thorough analysis of your needs and requirements. port authorities. and financial status. Once this is made. Finding An Overseas Representative Once you've determined that you want to export directly. but also demand.exportcourse. therefore it is important to carefully determine the correct connection for your exporting efforts.  Evaluate each potential representative's reputation. and foreign associations is available. shipping agents. Television and Motion Pictures Television and motion pictures can serve to elicit interest in several ways:  Direct advertising reaches a broad market quickly. events. It is often difficult and expensive to unwind from established Page 15 . The success or failure of your export effort will depend upon this decision. as well as a comprehensive search. Electronic access to all previously listed government and private services. screen.  The display of your product in a successful motion picture or television production can provide not only exposure. contacts. instead of indirectly. and leads. Agent or Distributor? The decision whether to use a distributor or an agent is a substantial one and vital to the nature of your overseas efforts. select.  Compile a list of possible representatives for each market. wholesalers. and sometimes even retailers). and reach an operating agreement with your contact. publications.  Draft and execute agreement. jobbers.

 You do not need to maintain inventory in the foreign country. Representation of any kind in a foreign country is much like a marriage. One of the best sources that can minimize your search efforts is the DOC Agent/Distributor service. made Page 16 . Use a Distributor if:  It is the accepted distribution method in the country to which you are exporting.  You want to maintain direct control of the sales of your products overseas. www. If you are not confident in your selection of a representative. they must sell it at the exporter's price. Since agents sell the product on behalf of the exporter.Export Tutorial: Part 3 (1/3) – Export Strategy Consultation with your legal counsel. you probably do not need to keep stock and maintain a distributorship program in the foreign country. under specified conditions. conduct a search. If your product has 51% or more U. and with prescribed representations. business contacts. you must locate possible candidates to act on your behalf. and prepare a report identifying up to six foreign prospects who have examined your literature and expressed interest. it can be easy to get into but often difficult and expensive to terminate. and the traditions of the country you are exporting to will have substantial bearing on your decision. the DOC will send your product literature to the specified foreign country.  You need to maintain inventory on the foreign country and do not want to maintain your own distribution network.  You intend to benefit from corporate identity and intend to conduct business under your own name. For example. databases. sell services. Use an Agent if:  It is the accepted distribution method in the country you are exporting to. if you manufacture custom or capital equipment. or can have inventory shipped direct for individual orders. These are available either through government sponsored or private sector programs. Compile Potential Representative List Once you've determined that you will use a representative.exportcourse. sell directly to retailers or other end users until the right one is located. the practicalities of your export requirements. and a host of other methods.S.