By Mark J. Jaklovsky, Director and Managing Partner
March 12, 2002
Expansion into international markets becomes a serious question for most growing companies. In today's interconnected global economy, the question of whether or not to export seems academic. It nevertheless demands asking due to the substantial risk and resources called for in expanding sales internationally.
Pursuing export markets is recommended in a number of situations:
If you choose to export, you will need begin by performing market research to evaluate the suitability of foreign countries for your export products. Then, if promising export markets are identified in this process, you can begin preliminary business discovery to determine if reliable and interested distributors, customers and suppliers exist in your target countries. Eventually you might initiate discussions with strategic partners whose contacts and market clout can support your export program. All of this information will provide you with the appropriate tools to enter the market or make a calculated postponement of your international expansion.
However, before you begin this effort, you should ask yourself the following questions:
Is my firm large enough?
Initial market research and business discovery are not costly, and a company can conduct such research with the assistance of regional experts, consultants or even internal resources. However, in the event that export promotion is justified, your company will need to invest in marketing, promotion, salaries, training and other areas. Most companies that attempt foreign exports and international marketing generate at least $2 Million in revenues annually and can support an international marketing budget of at least $100,000 per year. This represents the "entry-level" annual cost for a serious marketing campaign that aggressively and actively opens up no more than three foreign country markets to your products. Anything less will simply not meet basic marketing and promotional costs of entry.
What is my domestic competitive and market situation?
If intense domestic competition warrants focusing on improving local production and distribution, export sales may not be the best use of corporate resources. However, if foreign firms are a substantial source of competition, exporting into their home markets or altogether new markets will defend your company against price gouging and cross-regional "subsidies" (i.e., plowing earnings from sales of high-priced goods in one region into offering the same goods at low prices in your home market).
What are my financial objectives?
Several concerns related to financial planning warrant export sales:
On the other hand, export sales require substantial up-front investment in the form of market analysis, trips to the region to secure the required relationships, and ongoing support of export activities with promotional campaigns (like rebates). Additional areas related to exporting that require significant expenditure include safety and technical certifications, compliance with local laws and modification of existing products to meet foreign needs (e.g., conversion from English to Metric or vice versa). Since these costs affect a company's bottom line, they must be considered as well.
What strategic initiatives require an international presence?
Your company can leverage the international presence developed through international marketing and exports in a number of directions:
What is your time-frame and how much risk can you tolerate?
No foreign market is free from challenges, including lost shipments, delays, cultural miscommunication, corruption, unforseen competition, political upheaval, arbitrary government action, sudden changes to regulations and other risks. Working with partners such as distributors, manufacturers and consultants who bring expertise and connections in your region of choice minimizes this risk.
However, due to ubiquitous levels of risk (even in developed nations), you should be prepared to accept setbacks and always view exporting as a long-term, strategic direction. More often than not, exporting positively affects company performance and justifies the up-front planning, risk and investment required.