By Mark J. Jaklovsky, Director and Managing Partner
March 13, 2002
Export sales require market validation through first-hand research of a target market's conditions and how they affect the sale of your product. Whether you plan to export directly or through an agent, preliminary marketing (i.e., business discovery) and market research are essential to verify your products exportability to a given foreign market. Questions you need to "ask" your partners, potential customers and yourself during this process include:
What are local firms' and consumers purchasing power?
Ability to buy is the first hurdle preventing many excellent but expensive products from penetrating foreign markets.
Whether by simply observing the relative poverty of the country on your first day or investigating financial records of potential distributors, remember to be thorough. For example, a prosperous capital may betray poorer outlying areas. On the other hand, decrepit exteriors may mask vibrant new, small businesses growing inside.
Official statistics from most countries are flawed in many ways and rarely help determine purchasing power or true economic activity of your specific target market of consumers or firms (which may be a small subset of the population). Most developing or transitional economies have large gray markets (10 - 40% of Gross Domestic Product) on which taxes are not collected. Statistics, which are frequently compiled from tax or trade income, thus do not capture true buying power.
The best way to determine ability to pay is by taking the time to speak with your potential customers and determining their need. Initially this can be done from your home country until you uncover enough interest to justify an exploratory visit.
What are buyers' sensitivity to price and quality?
What are competitors offering?
Trade shows are important locations to determine this, and they provide the added opportunity to meet new customers or partners. Only at trade shows do so many competitors and potential customers assemble in one large room providing comparably easy research and marketing.
However, if possible, arrange one-on-one meetings with distributors during your first visit to a potential export market since they know the market better than anyone and can specify what products are doing well and why. These meetings can be arranged either through your countries' local chamber of commerce or export consultants already working in the region.
What laws and regulations affect importation?
Most countries require that imports meet safety, technical and quality requirements through testing and certification. Additionally, customs tariffs and regulations affect virtually any import anywhere. The key is to determine what requirements exist, but, more importantly, which ones are enforced. Some sources for official requirements include foreign states' embassies in your country, foreign trade associations and libraries, your countries' chambers of commerce located abroad. However, by befriending contacts at trade fairs, exhibitions and other marketing events, you can obtain more detailed information on what is truly needed.
At that point you can make an informed decision as to which certifications and regulations require immediate compliance. For example, small shipments of samples or products for test sales / marketing sometimes can be arranged without certification, allowing you to explore your products' potential without committing significant resources to certificates and testing.
However, initiate the certification process before export sales of significant volume occur since a sudden halt of your sales due to official actions will hurt customer confidence and damage your marketing investment. Always consult with local attorneys or trading firms if you are unsure.
What cultural and national characteristics affect product acceptance?
IMS has found that every country it visits is proud of its local production in one way or another. Generational attitudes color this pride further. For example, in Eastern Europe, leaders of top industrial firms are slightly less open to imports of foreign machinery, components or other items than the typically younger leaders of new distribution or e-commerce companies. Many cultural reasons arising from the recent past (and beyond the scope of this discussion) underpin this difference.
The situation is reversed in North America, where distribution is better established. Distributors tend to view imports more conservatively and skeptically; in contrast, many manufacturers are eager to find inexpensive foreign sources of components and materials that will lower the prices of their finished products and making them more competitive. Other regions of the world possess their particular variations in attitude and culture that divide the on the basis of age, nationality/race, caste, class, education and other factors. Your ultimate aim is to sell to all types, so developing a flexible marketing strategy with a sophisticated understanding of these differences is essential. Never underestimate the effect that these psychological nuances have on your marketing.
What, broadly speaking are expected "export terms?"
This includes two types of issues you must uncover:
However, in IMS' experience, most products do have a market, provided that the parties focus on the larger financial return possible from doing business together remain open to creative trading options. Joint venture, cooperation, licensing and barter are all strategic options that allow you to develop sales and create a presence in the market. Naturally, these choices are not appropriate for every company. However, if global competition and other forces discussed in "Why Export?" affect your company, a gradual entry into the market may be justified as a strategic option to lay the groundwork for future sales expansion.
Many scenarios justify this maneuver, including:
1 - A variant of cross-subsidization, "dumping," is policed and prohibited by many countries. Nevertheless, many firms routinely carry out "dumping." If it is not possible through direct subsidization of prices, then companies can simply increase local marketing by diverting the higher profits realized in less competitive markets (with higher prices) to markets where their primarily goal is not profitability but market share.
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