Export can be an excellent way to grow your company, but there is also a degree of risk. Entrepreneurs looking to expand their operations into foreign markets can minimize this risk with four key steps: gathering information, preparing their export plan, making a number of key decisions, and obtaining necessary financing.
Possibly the most essential step of entering a foreign market is developing an understanding of the local customs, culture, and economic conditions in your target market. Start with an online search and international trade authorities, who can often provide useful information. If the expansion is worth it, however, consider paying the market a personal visit. Reading articles and scanning statistics simply cannot compare with talking with potential clients and distribution channels on site.
Particularly if you represent a larger enterprise expanding into several markets, this kind of in-depth research may seem like overkill. Indeed, for an online retailer simply adding new countries to their “ship to” drop-down box, it may not be necessary. However, stories abound of businesses trying to enter foreign markets and making colossal translation mistakes which could have been avoided. Understanding how things work in practice, and not just how they are described in literature put out by various groups, may make the difference between success and failure of your market entry.
Preparing Your Export Plan
Once you’re satisfied that you understand the realities of doing business in the new market, start drawing up your export plan. Like a business plan, your export plan details the strengths, weaknesses, opportunities and threats (SWOT) you anticipate facing in the market. It clearly defines your objectives, so you can choose the right tactics to reach your goals. Lastly, having a well-thought-out export plan will boost your credibility with potential lenders if you seek out financing for your market penetration project.
In your export plan, spell out the countries which you’ll be targeting, the opportunities you see, the competitors you anticipate having, and how you’ll distribute and market products in each new location. Similarly, detail any changes you’ll need to make to your products to accommodate the needs of the market, the methodology you’ll use to choose your sales price, and how long you expect the process to take. If you need extra staff to implement the project or reach your market, describe the staffing levels you anticipate requiring and what metrics you’ll use to evaluate results during the process of implementation.
For your market entry, you’ll probably have to choose one of three strategies: distributors, sales representatives, or direct sales. Working with distributors and foreign retailers are perhaps the easiest option, as they buy direct from your firm and handle in-country distribution. Alternately, you can have your sales representatives call on potential buyers with product samples and literature. Lastly, and this option is particularly popular with online firms, direct sales means delivering directly to the foreign consumer.
Making the Right Choices
Unless your firm is an online venture whose primary commitment to the foreign market is making your website available in their language and offering shipping to their country, it’s very likely the market penetration will be a substantial commitment of time, money, and effort. It should not be considered as a short-term fix to deal with lackluster domestic sales.
Especially if this is your first foreign market entry, focus on one market at a time. You can attempt to go after others later. For now, focus on determining all the adaptations you’ll have to make in your product, promotions, and price to succeed in the foreign market — and to survive the myriad tax, shipping, currency, and insurance hurdles.
One thing you should be careful to avoid, though it may seem obvious, is competing with your local partners. Check out what they offer in country (which may be different from what they advertise on their website) and ensure your interests are aligned. If possible, look for partners who have complementary products which will give you a competitive advantage.
With respect to contracts, try and avoid contracts governed by foreign law. Similarly, don’t agree on exclusivity with any foreign partner unless they attain a certain level of sales or another business objective. Also, spend some time finding a skilled customs broker who will eliminate delays and who will satisfy both you and your local partners.
Once you run the numbers, you may find it’s better to look for outside capital rather than dipping into your operating funds to finance the export venture. To get financing, you’ll need to have solid financial planning both for the short and the long term. This means backing up your export goals with a financial plan that assess all the potential costs and revenues, and outlines both the amount and the type of financing you need.
Include everything in your export budget — from product adaptations to travel expenses and distributor commissions. Lay out your financing options, how you intend to handle expansion costs, what you’ll do to ensure you get paid, and show how it all affects your working capital and cash flow.
Entering a foreign market can be a complex endeavor. As well as the major issues like knowing your market, adapting your operations, and financing the entry, you’ll also have to navigate a complex set of laws and regulations governing export and import. The resulting logistics headache almost always requires a customs broker, as trying to prepare the paperwork yourself might overwhelm your business. Provided you do successfully clear all the hurdles, however, international expansion can be a highly rewarding move.