Letting Started in Export

This section is addressed to the company that wants to enter export mar­kets but has no prior experience in international business.

To obtain information on foreign markets and how to go about export­ing, the U.S. manufacturer can contact many sources, but three sources deserve special mention: (1) the U.S. Department of Commerce and its regional offices, (2) the international department of the manufacturer’s bank, and (3) export management companies.

1. U.S. Department of Commerce

The Department of Commerce is the principal U.S. government agency responsible for promoting exports.¹¹ It offers an extensive list of publica­tions and services, free or at a minimal charge, to assist exporters, including the following: a foreign trader’s index with information on more than 150,000 importing organizations in 135 countries; an export mailing list service, which supplies the addresses of foreign firms by country and prod­uct; a trade-list service containing the names and addresses of foreign distributors, agents, purchasers, and other firms, classified by their products and services; an agent-distributor service (ADS), which helps manufacturers find agents or distributors almost anywhere in the world; a trade opportu­nities program, which provides up-to-date direct sales leads and representa­tion opportunities from foreign sources through a computerized mail service; the world trader’s data report service, which offers a trade profile of foreign companies containing detailed commercial information; business counseling services offering guidance, in-depth counseling, and the schedul­ing of appointments with appropriate government officials; and foreign market reports on markets and economic conditions.

The Department also sponsors the participation of manufacturers in shows at U.S. trade centers abroad and in U.S. exhibits at international trade fairs, in trade missions abroad, and in catalog shows held at U.S. embassies or in conjunction with an exhibition. Each trade center holds up to nine major product exhibitions annually.

2. Banks

The international departments of banks can provide information to manu­facturers on export financing, payment, and documentary requirements. Banks can also obtain information on foreign firms and countries through their extensive links with other banks throughout the world. Frequently, banks can obtain this information more quickly than the U.S. Department of Commerce.

3. Export Management Companies (EMCs)

A 1978 U.S. Department of Commerce survey of 5,000 randomly selected manufacturing firms found that the five principal internal obstacles to ex­porting arc (I) lack of knowledge of how to locate foreign agents and distributors, (2) lack of foreign market knowledge, (3) lack of commitment to foreign markets, (4) fear of not being paid, and (5) lack of adequate personnel.¹² Manufacturers that want to export but suffer from these obsta­cles should investigate the use of an export management company to handle their export business.

An EMC is an international marketing specialist that functions as the export department of several manufacturers in noncompetitive lines. But it is difficult to generalize about EMCs beyond that statement, because their services are adapted to individual clients, product lines, markets, and their own resources. In a word, the population of EMCs is extremely heteroge­neous. No one knows the exact size of that population, but it probably runs about 1,200 firms, which represent some 10,000 manufacturers and account for about 10 percent of U.S. manufactured exports.

A survey of 198 EMCs uncovered several features that can help manu­facturers in their choice of EMCs as an export channel:¹³

• EMCs are small. Almost half the companies had only one or two individuals in managerial or sales capacities; only 7 percent had more than ten employees. Thus an EMC is typically smaller than its client companies.
• Only a minority (27 percent) of the EMCs had their own foreign branch offices.
• Most EMCs used outside freight-forwarding firms.
• Nearly half of the EMCs were located within 200 miles of an East Coast port; only 10 percent were not located near a port.
• Less than half (43 percent) of the EMCs had visited more than ten countries in the past year, and about one-fifth had not visited any foreign country.
• Almost half (46 percent) of the EMCs always took title to their clients’ merchandise, and only 8 percent never took title.
• A high majority (85 percent) of the EMCs accepted credit responsibil­ity.
• Less than half (41 percent) of the EMCs carried inventories even Generally, orders are drop-shipped from a manufactur­er’s warehouse or factory.
• EMCs serve large as well as small companies: one-third of the client companies had annual sales of more than $50 million.
• Few EMCs have expertise in all foreign markets. As a group, they know most about Latin America, Europe, and Asia, and know least about Africa, Oceania, Communist countries, and Canada.
• Almost two-thirds (63 percent) of the EMCs represented manufactur­ers in three or more industries, a substantial degree of product diver­sification given their generally small size. Thus many EMCs are market specialists, but not product
• Almost all EMCs will take on new clients. And most EMCs are willing to accept exclusive rights for a single country or group of countries in a continental area. Only 16 percent of the EMCs de­manded exclusive distribution rights on a worldwide basis.
• Only 5 percent of the EMCs absolutely required a startup fee. But a majority expected the client to pay in whole or in part the costs of advertising brochures, exhibition space in trade shows, samples, and trade advertising.

The wide diversity among EMCs makes it difficult for the manufacturer to find an EMC that best suits his purposes. A rational search process resembles that for finding foreign agents and distributors. The first step is drawing up a list of EMCs that appear to have experience with the manu­facturer’s product line and target markets. To do this, the manufacturer can obtain information from EMC regional associations, trade publications, and the U.S. Department of Commerce.¹⁴ The second step is for the manu­facturer to narrow the list down to, say, the five best prospects. The third step is to contact directly these key prospects. The fourth step is to choose the most appropriate EMC. Since few EMCs can do a good job in all foreign markets or for all product lines, the manufacturer that wants world­wide distribution or has two or more product lines may find that two or three EMCs can do a better job than a single one.

In using EMCs, manufacturers should tty to maximize the advantages and minimize the disadvantages of this indirect export channel. The princi­pal advantage is access to foreign markets by “plugging in” to the EMC’s foreign marketing network. The manufacturer can strengthen this advan­tage by carefully selecting the EMC in the first place, and then supporting the EMC. The latter involves working with the EMC to design a foreign marketing plan for the manufacturer’s product line; contributing product information, sales literature, sales training, samples, and advertising and technical assistance; and backing up the EMC’s export operations with the prompt servicing of orders.

The principal disadvantage of the EMC channel is the manufacturer’s loss of control over foreign sales. But this loss can be moderated by (1) specifying in the EMC contract key decisions requiring the manufacturer’s approval (for example, prices and credit), (2) requiring periodic sales re­ports by product and market, (3) including a termination clause enabling the manufacturer to break the EMC contract without cause (say, with 60 days’ notice), and most important, (4) working intimately with the EMC.

Source: Root Franklin R. (1998), Entry Strategies for International Markets, Jossey-Bass; 2nd edition.