Although the basic functions of exporting and domestic selling are the same, international markets differ widely because of great variations in certain uncontrollable environmental forces. These include currency exchange controls/risks, taxation, tariffs, and inflation, which happen to originate outside the business enterprise. Such variations require managers who are aware of global threats and opportunities.
If a company already manufactures a product or service, it is reasonable to assume that its product or service is what will be exported. However, companies must first determine the export potential of a product or service before they invest their resources into the business of foreign trade. To establish the export potential of a product, firms must consider the following factors: the success of the product in domestic markets, participation in overseas trade shows, advertising, and market data.
If a product is successful in the domestic market, there is a good chance that it will be successful in markets abroad. However, a careful analysis of a product’s overseas market potential is needed. One could start by assessing the demand for similar products domestically and abroad, as well as determining the need for certain adaptations or improvements. Trade statistics provide a preliminary indication of markets for a particular product in most countries. For products or services that are not new, low-cost market research is often available that can help determine market potential. Products that are less sophisticated and for which there is declining demand in developed countries’ markets often encounter a healthy demand in developing nations because the goods are less expensive and easy to handle (Weiss, 2007).
Participation in overseas trade shows is a good way to test the export potential of products or services. A recent study commissioned by America Business Media found that seven out of ten business executives purchased or recommended the purchase of a product or service after looking at an advertisement or promotion at a trade show (Schwartz, 2006). However, if an assessment of the actual and potential uses of the product or service indicates that it satisfies certain basic needs in the market place, initial sales can be made to establish demand as well as to determine potential improvements.
To achieve success, there must be a strong and lasting management commitment to the export business. The long-term commitment is necessary to ensure the recovery of high market-entry costs related to product modification, legal representation, and advertising, as well as the development of an agent/distributor network (see Table 4.1).
Companies already operating in the domestic market need to consider the development of export markets through the allocation of financial and personnel resources or through the use of outside experts. In the absence of sufficient knowledge about exporting, it is often advisable for companies to hire consultants who would be engaged in the establishment of the department and the training of personnel.
An individual entrepreneur, acting as a middleman between the manufacturer and the importer, can pick any product or service. There are two approaches to selecting a product or service the systematic and the reactive.
1. Systematic Approach
The systematic approach involves selection of a product or service based on overall market demand. An individual entrepreneur often selects a product line or service on the basis of demand and growth trends by observing trade flows. A variety of statistical sources provide data (for products and services) pertaining to the major export markets, projected total demand, and U.S. exports in each market, along with the rank of the countries based on the projected import value. This process of collecting and analyzing information enables the potential exporter to draw conclusions on the best line of products or services as well as promising markets. It is, however, important to select products or services on the basis of familiarity and skill. A computer technician is in a more advantageous position to export computers, computer parts, software, and computer services than a graphic designer because of the former’s prior knowledge about the product/service. This individual is more likely to be familiar with product- and/or service-specific issues such as quality, technical specifications, adaptability to overseas requirements, and maintenance or after-sales service.
Other important factors to consider in product/service selection include proximity of the producer or manufacturer to one’s home or office in order to maintain close personal contact and closely monitor and discuss product quality, production delays, order processing, and other pertinent matters. Once a potential product (service) for export has been identified, the individual must undertake market research to select the most promising markets on the basis of import value and growth trends. Both manufacturing companies and individuals must consider whether a given product has export potential before investing substantial time, effort, and capital (Ball, Geringer, Minor and McNett, 2013).
2. Reactive Approach
The reactive approach involves selecting a product on the basis of immediate market need. Even though it is quite common to select the product and identify possible markets, certain exporters initially identify the consumer need and then select a product or service to satisfy the given market demand. A plethora of publications advertise products/services (exporters can also advertise) that are needed in foreign countries by public- or private-sector importers. The first step would be to contact potential importers to indicate one’s interest in supplying the product and to obtain other useful information. Once there is a reasonable basis to proceed (based on the importer’s response), potential suppliers of the product/service can be identified from the various directories of manufacturers. In the United States, for example, the Thomas Register of Manufacturers is considered to be a comprehensive source of U.S. manufacturers.
In both cases (systematic or reactive), selection of the manufacturer depends on a number of factors, including price, quality, and proximity to home or office, as well as the manufacturer’s commitment to export sales. There must be a long-term commitment from management to encourage the development of export markets, and this cannot be motivated by occasional needs to dispose of surplus merchandise. It is also important to consider the existence of export restrictions that limit the sale of these products to specific countries and their implications for sales and profits. Manufacturers may also impose certain restrictions when they have an agent/distributor or a subsidiary producing the goods in the market (International Perspective 4.1).
The reactive approach to selecting a product has certain disadvantages for the individual entrepreneur who acts as an intermediary between the manufacturer and importer:
- Lack of focus on a given product or market: Chasing product orders in different markets impedes the development of a systematic export strategy. This approach ignores the idea of niche exporting, which is critical to the success of any export-import enterprise. It leads to exports of unfamiliar products and/or sales to difficult markets, which hampers the long-term growth and profitability of export businesses.
- Absence of long-term relationship with the importer: Selling different products to different markets impedes the development of a long-term relationship with importers. It also creates suspicion on the part of importing firms about the long-term reliability and commitment of the firm to exporting.
Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.
Absolutely pent subject matter, Really enjoyed looking through.