Subscribe
PLANT

Exporting: Ensuring success in new markets

Success in a new market often depends on making a correct decision on how best to enter it. Having targeted one or more markets, completed desk research and outlined a marketing plan, how will you promote, sell and distribute your company’s wares, and will you be flying solo or entering into some kind of partnership?


December 10, 2010
by Mark Drake

Success in a new market often depends on making a correct decision on how best to enter it. Having targeted one or more markets, completed desk research and outlined a marketing plan, how will you promote, sell and distribute your company’s wares, and will you be flying solo or entering into some kind of partnership?

The answer will depend on the nature of the market. Is it advanced like the UK, rapidly emerging like China or Brazil, developing like Malaysia and Indonesia or under-developed like Yemen or Chad?

Market entry conditions vary enormously. In most developed countries, for example, it’s possible to obtain the necessary permissions and basic services (electricity/telecommunications) for an independent sales/distribution or even manufacturing facility within a matter of weeks. In some emerging countries, it can take up to a year, with many hoops to jump through.

In developed countries there is a wide choice of sales and distribution arrangements. Elsewhere distribution may be by bullock cart and sales outlets may operate from a storefront that opens onto a dusty street. Not that these operations are necessarily ineffective for the areas they serve, but good partners can be much harder to find, understand, motivate and train.

Here are some of the entry options.

Direct branch operations. The great advantage here is control of the location, type of building and environment, recruitment of qualified personnel, their motivation and reward systems and above all the ability to handle poor performance and staff replacement. The main challenges are communications and cost. Internet and video-conferencing have improved long distance management significantly; however, costs can be significant as everything (including local consultants to help with set-up, personnel and labour regulations, rent, salaries, travel expenses, customs clearance) falls to your account. So this choice is usually for large, well-established and relatively well-heeled organizations.

Distibutors. By definition distributors usually buy the product from the supplier at a special discounted price and resell it to retailers or end users, so success depends a great deal on the partnership agreement. Will the distributor hold inventory for speedy delivery to the end customer? Will pricing be competitive to gain market share, or set to increase margins? Does the distributor have complementary lines of business that salespeople can offer in package deals – usually an advantageous door opener? Are salespeople hungry for business, easily trainable, motivated and experienced in your area of business? All this should be assessed as accurately as possible, and conditions – including performance criteria – included in the distribution agreement. At the same time this agreement must be good for both parties. Distribution partners want to make profits too so beware the export manager who says he’s squeezed a really good deal out of a new partner…the arrangement may turn out to be short-lived.

Agents/representatives. They do not buy and resell products, nor do they normally hold inventory. They simply sell the product and then pass the order back for delivery, either from a central local warehouse or the home base, with the invoice and credit risk falling to the supplier. They work on commission (much lower than the distributor’s discount), but take very little risk. Once again the service provided depends on the negotiated agreement. I have worked with agents who were so close to the supplier company that they could almost be considered part of the staff, and they provided after-sales contact and sometimes-technical service to the customer, and gave detailed feedback about market conditions, which is critical for planning. The best agent is usually one who works for a limited number of closely related product lines, and who is qualified enough to gain the customer’s confidence and to provide some limited technical service.

Trading houses. These usually buy and sell on their own account, trading in many different products and supplying many different markets. I remember dealing with one in Montreal for a single order received from Egypt. We had no agent there, nor did we plan to attack that market, so a trading house was ideal for a single (but potentially repeatable) and straightforward order. We sold to them and they handled everything else, shipment, customs, foreign exchange and credit risk. They had developed excellent contacts over the years, knew their way around the markets, and were familiar with local customs and bureaucracy.

Other partnerships. These can include special joint marketing or production agreements, licensed manufacturing and other types of joint venture or technology transfer. They usually take place once a market has been developed by one of the other means, and often involve investment on the part of the supplier company.

For more information check out web sites such as: www.canadabusiness.ca (new general government site for entrepreneurs), www.atmexport.com (for a crash course on marketing) and www.fitt.ca (Global Business Environment, Entering and Maintaining the Market).

Mark Drake is former president of Electrovert Ltd. and the Canadian Exporters’ Association. E-mail corsley@videotron.ca.

Back to Manufacturing Intelligence Spotlight: Exporting